Category: Patentability Requirements

Professor David Taylor on Patent Eligibility and Investment

Post author By Joshua Grove
Post date February 4, 2021

The following post comes from Terence Yen, a 4E at Scalia Law and a Research Assistant at CPIP.

By Terence Yen

In his new paper, Patent Eligibility and Investment, Professor David Taylor of the SMU Dedman School of Law explores whether the Supreme Court’s recent patent eligibility cases have changed the behavior of venture capital and private equity investment firms. The paper comes from CPIP’s Thomas Edison Innovation Fellowship program, and it was published in the Cardozo Law Review. The tables referenced in this summary should be credited to his paper, and readers are encouraged to read the original publication for a deeper understanding of his survey results.

Prof. Taylor explains that, since 2010, the Supreme Court has come out with several decisions that have shaken up our understanding of patent eligibility. Not only do the new standards set forth by the Court lack administrability, but they have also created confusion and have far reaching consequences that have drawn concern and criticism from inventors, scientists, lawyers, judges, and industry groups. In fact, these new standards have required lower courts to make determinations of eligibility that the judges themselves recognize as flawed.

As Prof. Taylor explains, the crux of the issue lies in the Supreme Court’s new patentability standard, which requires an inventive application of a newly discovered law of nature, a natural phenomenon, or an abstract idea beyond the mere practical application of such a discovery, as had been previously required. The result is that a scientist cannot obtain a patent for merely making a new discovery (e.g., the cure to cancer) and disclosing how to apply that discovery to advance the state of the world (e.g., treating a patient using the cure). The inventor must additionally include a disclosure of how to apply the new discovery in a new way, creating a double novelty requirement.

Prof. Taylor points to Ariosa Diagnostics v. Sequenom to illustrate some of the issues with this new standard. In Ariosa, scientists discovered that a pregnant woman’s bloodstream included genetic material from her unborn baby. Upon making this discovery, they used known techniques to create methods to use the material to identify fetal characteristics. These new methods were a significant improvement on prior ones, which required the invasive and risky process of taking samples from the fetus or placenta.

The inventors obtained a patent, but the Federal Circuit was forced to invalidate it because the claimed method did not include any inventive concept transforming this natural phenomenon into a patent-eligible invention. In his concurring opinion, Judge Linn condemned the Supreme Court standard, as it required the court to find that an otherwise meritorious invention was ineligible to obtain the protection it deserved. He particularly criticized the second part of the standard, the requirement of an “inventive concept”, which discounts “seemingly without qualification” any conventional or obvious steps in the process.

Many people have criticized this new two-part test and the additional requirement of an “inventive concept.” Indeed, Prof. Taylor previously condemned this standard as reflecting “a lack of understanding of the relevant statutory provisions, precedent, and policies already undergirding the patent statute.” In this new paper, Prof. Taylor seeks to understand how this has impacted investment decisions, and he begins to compile the data largely missing from the existing literature that would start to shed light on the matter.

To gather the relevant data, Prof. Taylor conducted a survey of 475 venture capital and private equity investors from at least 422 different firms representing the various early stages of venture capital funding: early, seed, middle, growth, expansion, and late investors. In general, he asked two types of questions:

1. Whether the Supreme Court’s rulings on patent eligibility have impacted their decisions to invest in companies developing technology, and if so, how

Indirect questions related to the same issue, such as asking about any changes to decisions to invest in companies over the relevant time period, and whether those changes relate to any decreased availability of patent protection

The tables below indicate the different stages of venture capital funding represented by the surveyed firms, as well as the variety of represented industries. The total percentages come out to over 100%, because most firms focused on multiple investment stages and industry areas. It should be noted that the survey questions related only to U.S. patents and only to financing activities in the United States.

Table 1: Investment Stages of Respondents' Firms. Early stage, 59%. Seed stage, 45%. Middle Stage, 27%. Growth Stage, 22%. Expansion stage, 15%. Lat stage, 1%.

Table 2: Investment Industries of Respondents' Firms. Industry to percent. Software and the Internet, 70%. Medical Devices, 63%. Computer Electronics/Hardware, 61%. Biotechnology, 55%. Pharmaceutical, 54%. Communications, 53%. Energy, 49%. Semiconductors, 48%. Transportation, 47%. Construction, 42%.

The Findings

Overwhelmingly, investors reported that patent eligibility is an important consideration for their firms when deciding whether to invest in companies that are developing technology. In total, 74% agreed with this idea, while only 13% disagreed.

Table 7: Patent Eligibility Is an Important Consideration in Firm Decisions Whether to Invest in Companies Developing Technology. Response to percent. Strongly agree, 43%. Somewhat agree, 31%. Neither agree nor disagree, 13%. Somewhat disagree, 9%. Strongly disagree, 5%.

This led to the natural follow-up question: If the laws of patent eligibility make a patent unavailable for a certain technology, would the firm be less likely to invest in companies developing that technology? In response, 62% agreed that their firms would be less likely to invest given the unavailability of patents.

Table 8: Less Likely to Invest if Patent Eligibility Makes Patents Unavailable. Response to percent. Strongly agree, 23%. Somewhat agree, 39%. Neither agree nor disagree, 19%. Somewhat disagree, 13%. Strongly disagree, 7%.

The response changed slightly when the scenario was changed to one where the patent was merely more difficult to obtain. However, there was not a significant change from the response to the previous question, and respondents weighed in at 59% agreement.

Table 9: Less Likely to Invest if Patent Eligibility Makes Patents More Difficult to Obtain. Response to percent. Strongly agree, 19%. Somewhat agree, 40%. Neither agree nor disagree, 18%. Somewhat disagree, 17%. Strongly disagree, 5%.

From the data collected, it appears that investors in the medical device, biotechnology, and pharmaceutical industries tend to value patentability slightly more than investors in the software space. Additionally, early-stage investors seemed to value patent eligibility slightly more than their late-stage counterparts, though there was not a statistically significant difference reported between the different stages of investment. Prof. Taylor theorizes here that a larger sample size might indicate a more obvious trend.

Prof. Taylor notes one interesting statistic: those who were familiar with the Supreme Court’s recent eligibility decisions tended to value patent eligibility higher than those who were not familiar with the cases. This may indicate that the more aware an investor is of the recent opinions, the more they value the impact of those opinions. Prof. Taylor makes sure to note, however, that the data do not preclude the possibility that the more one knows about a subject, the more importance one places on one’s own knowledge of the subject. Additionally, patent eligibility did not appear to be the primary focus for investors. When compared with various other factors typically considered by investment firms, patent eligibility was consistently relegated to a lesser role. It is significant to note that the present survey focused on the availability of patents based only on patent eligibility.

In general, investors indicated that the loss of patent protection would cause them to decrease their investments, though Prof. Taylor finds that this decreased investment would be more pronounced in some industries than others. As shown using weighted averages, the three industries with the greatest reported decrease would be the pharmaceutical, biotechnology, and medical device industries.

Next, Prof. Taylor explores the impact that the Supreme Court’s decisions have had on investment behaviors. The survey showed that 38% of investors were familiar with at least one of the patent-eligibility cases. About 40% of those knowledgeable investors indicated that the decisions had a negative effect on their firms’ existing investments, compared with 14% who indicated positive effects.

Table 21: Impact of Supreme Court's Eligibility Cases on Existing Investments. Response to percent. Very positive, 1%. Somewhat positive, 13%. No Impact, 46%. Somewhat negative, 33%. Very negative, 7%.

However, Prof. Taylor notes that these numbers represent only the static impact of the Supreme Court cases. Dynamic impact—meaning, the impact on future decision making—is likely the more important statistic. Interestingly, only one-third of investors indicated that the cases would impact their decisions on whether to invest in companies going forward, with no statistically significant difference based on industry or stage of funding.

Table 22: Have Any of the Supreme Court's Eligibility Cases Affected Firm Decisions Whether to Invest in Companies. Yes, 33%. No, 61%. Don't know, 6%.

With the numbers above representing investors with knowledge of the patent eligibility cases, it should be no surprise to learn that investors unfamiliar with the Supreme Court cases overwhelmingly responded that the decreased availability of patents had not impacted their firms’ changes in investment behavior.

Conclusion

While there were a wide variety of opinions from the many investors regarding the current state of patent eligibility, the general consensus was that the Supreme Court’s decisions have had a negative impact on patentability, leading to a potential decrease in a willingness to invest. This attitude was most prevalent in, but not limited to, the biotechnology and pharmaceutical industries.

As presented in his paper, Prof. Taylor’s survey provides the first empirical data on how the current state of patent eligibility has affected the attitude of investors. Like all surveys, however, it is susceptible to a certain degree of error caused by various unavoidable human characteristics. Even recognizing its limitations, this survey provides useful information that can be used to begin analyzing the question of whether the Supreme Court’s eligibility cases have impacted investment decision making, and it sheds light on an issue about which many experts in the field have become increasingly concerned.

Tags David Taylor, investment, patent eligibility, patentability, patents, Richard Linn, Supreme Court, technology, Terence Yen, Thomas Edison Innovation Fellowship

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Federal Circuit Again Finds Computer-Implemented Invention Patent Eligible

Post author By Joshua Grove
Post date September 16, 2016

In Tuesday’s McRO v. Bandai decision, the Federal Circuit has once again reversed a district court’s determination that a computer-implemented invention (aka “software patent”) was not patent eligible under Section 101 of the Patent Act. This continues the Federal Circuit’s recent trend of clarifying the Supreme Court’s two-step patent-eligibility test under Mayo and Alice. The first step asks whether the invention is “directed to” a patent-ineligible concept, such as an abstract idea. If so, the second step then asks whether there is an “inventive concept” that transforms the concept into a patent-eligible invention. While the Supreme Court gave little guidance on what “directed to” and “inventive concept” mean in practice, the Federal Circuit’s recent decisions have made the Mayo-Alice test far less abstract—rather ironic, given that the test itself assesses abstractness.

This past May, the Federal Circuit held in Enfish that, in the software context, the “directed to” inquiry looks at whether “the plain focus of the claims is on an improvement to computer functionality itself.” Since the database claims at issue focused on specific improvements to computer capabilities, they were not “directed to” a patent-ineligible concept under Section 101. Two months later in Bascom, the Federal Circuit stated that an “inventive concept can be found in the non-conventional and non-generic arrangement of known, conventional pieces.” And even though each software claim, related to filtering content on the internet, was “known in the art” when taken individually, the Federal Circuit held that the claims, in combination, were patent eligible because they transformed “the abstract idea of filtering content into a particular, practical application of that abstract idea.”

Adding to this recent line of cases upholding the patent-eligibility of computer-implemented inventions, the Federal Circuit’s new opinion in McRO v. Bandai sheds even more light on the Section 101 analysis under the Mayo-Alice test. The invention at issue involved automated lip-syncing for computer-generated animation, which the district court held was drafted too broadly to be patent eligible. The Federal Circuit reversed, noting that courts “must look to the claims as an ordered combination,” even under the first step of the Mayo-Alice test. The Court of Appeals thus found that the proper analytical centerpiece was “whether the claims in these patents focus on a specific means or method that improves the relevant technology.” Since the invention constituted a “combined order of specific rules that renders information into a specific format that is then used and applied to create desired results,” the Federal Circuit held it patent eligible under Section 101.

Several commentators have praised the Federal Circuit’s decision. Bob Sachs, who specializes in patentable subject matter as a partner at Fenwick & West, points out that the Federal Circuit, for the first time, has used preemption to find that the invention was not “directed to” patent-ineligible subject matter. The Federal Circuit here looked at preemption as part of the first step of the Mayo-Alice test, finding it relevant to whether the invention was “directed to” a patent-ineligible concept in the first place. As Sachs explains, the Federal Circuit “confirms Enfish’s holding that the improvement provided by the specific claim limitations can be considered” under the first step of the Mayo-Alice test. Moreover, Sachs notes that the “panel here makes clear that a demonstration of meaningful non-preemption is sufficient to establish that a claim is not ‘directed to’ an abstract idea, and thus eligible at step 1.”

Other observers, including Erich Andersen, VP and Deputy General Counsel at Microsoft, and Gene Quinn of IPWatchdog, have applauded the Federal Circuit for making the patent-eligibility analysis even more concrete in light of the Supreme Court’s rather abstract abstractness test in Mayo and Alice. If anything, the Federal Circuit here has not only built upon its prior precedents in Enfish and Bascom, it has tied them together by explaining that ordered combinations are relevant to both the first and second steps of the Mayo-Alice test. In the end, the patent eligibility of a computer-implemented invention appears far more settled than ever before–a great result for inventors of so-called “software patents.” The Federal Circuit’s decision is certainly a far cry from the supposed death-knell for “software patents” predicted by several commentators after the Supreme Court’s opinion in Alice.

Biotech High Tech Industry History of Intellectual Property Innovation Intellectual Property Theory Inventors Legislation Patent Law Patent Litigation Patent Theory Patentability Requirements Software Patent Supreme Court Uncategorized

Federal Circuit Brings Some Clarity and Sanity Back to Patent Eligibility Doctrine

Post author By Joshua Grove
Post date July 14, 2016

By Adam Mossoff and Kevin Madigan

Following the Supreme Court’s four decisions on patent eligibility for inventions under § 101 of the Patent Act, there has been much disruption and uncertainty in the patent system. The patent bar and most stakeholders in the innovation industries have found the Supreme Court’s decisions in Alice Corp. v. CLS Bank (2014), AMP v. Myriad (2013), Mayo Labs v. Prometheus (2012), and Bilski v. Kappos (2010) to be vague and doctrinally indeterminate. Given the moral panic about the patent system that has been created as a result of ten years of excessive lobbying in D.C. for legislation that weakens patent rights, judges have responded to the excessive discretion they have under these cases by invalidating whole swaths of patented innovation in the high-tech, biotech, and pharmaceutical industries. The Patent Office is also rejecting patent applications at record levels, even for traditional inventions outside of high-tech and life sciences directly affected by the recent § 101 case law.

In Sequenom v. Ariosa, the Supreme Court had the opportunity to bring some clarity to the law of patent eligibility and to reign in some of the judicial and Patent Office excesses, but unfortunately it rejected this opportunity when it denied Sequenom’s cert petition this past June. Fortunately, the Court of Appeals for the Federal Circuit is now taking the lead in providing some much-needed legal guidance on patent eligibility to the inventors and companies working in the innovation industries. In two recent decisions, Enfish v. Microsoft and Rapid Litigation Management v. CellzDirect, the Federal Circuit has set forth some important doctrinal guideposts for defining what counts as a patent-eligible invention. Not only do these two decisions bring some reason and clarity back to the law of patent eligibility under § 101, they provide important doctrinal insights on how stakeholders may wish to address this problem if they ultimately choose to seek relief in Congress.

Enfish and the Patentability of Computer-Implemented Inventions (a/k/a “Software Patents”)

At the time it was decided, some commentators believed that the Alice decision was a directive from on high that most, if not all, computer software programs were not patentable inventions. This was a surprising claim if only because the Alice Court did not once use the phrase “software” in its entire opinion. Of course, “software patent” is not a legal term in patent law; the proper term is “computer-implemented invention,” as used by the Alice Court, and so the Court may have been only avoiding vague rhetoric from the patent policy debates. More important, though, this claim about Alice contradicts the Court’s opinion in Bilski just four years earlier, when the Court warned the Federal Circuit not to adopt a bright-line rule that limited § 101 to only physical inventions of the “Industrial Age,” because this created unnecessary and innovation-killing “uncertainty as to the patentability of software.”

Unfortunately, the ambiguities in Alice and in the Court’s prior patentable subject matter decisions, such as Mayo, left enough discretionary wiggle room in applying the generalized patent-eligibility test to permit judges and patents examiners to wage war on computer-implemented inventions. They thus made real again in the twenty-first century Justice Robert Jackson’s famous observation in 1949 that “the only patent that is valid is one which this Court has not been able to get its hands on.” Jungersen v. Ostby & Barton Co., 335 U.S. 560, 572 (1949) (Jackson, J., dissenting). As one commentator remarked several months after Alice was decided, “It’s open season on software patents.” The data over the next several years has borne out the truth of this statement.

The key argument against patents on computer-implemented inventions, such as key components of word processors, programs that run internet searches (like the patented innovation that started Google), and encryption software, is that such inventions are inherently “abstract.” The judicial interpretation of § 101 has long maintained that abstract ideas, laws of natural, and natural phenomena are unpatentable discoveries. In Alice, for instance, the Court held that a complex software program for extremely complex international financial transactions was an “abstract idea” and thus unpatentable under § 101. But beyond claims that something long known is “abstract,” the Court has failed to define with precision what it means for a discovery to be abstract. With little to no specific guidance from the Alice Court, it is no wonder that judges and examiners have succumbed to the recent moral panic about patents and declared “open season” on patents covering computer-implemented inventions.

In this context, the Federal Circuit’s decision in Enfish v. Microsoft is extremely important because it ends the unreasoned, conclusory “I know it when I see it” rejections of patents as “abstract” by judges and examiners.

In Enfish, the Federal Circuit reversed a trial court’s summary judgment that a patent on a computer-implemented invention was an unpatentable abstract idea. The patent covered a type of database management system on computers, a classic incremental innovation in today’s digital world. In its decision, the trial court dissected the invention down into the most basic ideas in which all inventions can be reframed as representing; for example, methods of using internal combustion engines can easily be reframed in terms of the basic laws in thermodynamics. In this case, the trial court asserted that this patent on a computer-implemented invention covered merely the “abstract purpose of storing, organizing, and retrieving” information. The trial court thus easily concluded that the invention was merely “abstract” and thus unpatentable.

The Federal Circuit rejected the trial court’s conclusory assertion about the invention being “abstract” and further held that such assertions by courts are a legally improper application of § 101. With respect to the patent at issue in this case, Judge Todd Hughes’ opinion for the unanimous panel found that

the plain focus of the claims is on an improvement to computer functionality itself, not on economic or other tasks for which a computer is used in its ordinary capacity. Accordingly, we find that the claims at issue in this appeal are not directed to an abstract idea within the meaning of Alice.

More important, the Enfish court cautioned courts against the methodological approach adopted by the trial court in this case, in which “describing the claims at such a high level of abstraction and untethered from the language of the claims all but ensures that the exceptions to § 101 swallow the rule.” The court recognized that adopting a “bright-line” rule that computer-implemented inventions—the “software patents” decried by critics today—are necessarily “abstract” runs counter to both § 101 and the recent Supreme Court cases interpreting and applying this provision: “We do not see in Bilski or Alice, or our cases, an exclusion to patenting this large field of technological progress.”

Further confirming that Enfish represents an important step forward in how courts properly secure technological innovation in the high-tech industry, the Federal Circuit relied on Enfish in its recent decision in BASCOM Global Services Internet Inc v AT&T Mobility LLC. Here, the Federal Circuit again rejected the trial court’s dissection of a patent claim covering a software program used on the internet into an “abstract” idea of merely “filtering content.” The BASCOM court emphasized that courts must assess a claim as a whole—following the Alice Court’s injunction that courts must assess a patent claim as “an ordered combination of elements”—in determining whether it is a patentable invention under § 101. As numerous patent scholars explained in an amicus brief filed in support of Sequenom in its failed cert petition before the Supreme Court, requiring a court to construe a “claim as a whole” or “the invention as a whole” is a basic doctrinal requirement that runs throughout patent law, as it is essential to ensuring that patents are properly evaluated both as to their validity and in their assertion against infringers.

CellzDirect and the Patentability of Discoveries in the Bio-Pharmaceutical Industry

The high-tech industry is not the only sector of the innovation industries that has been hit particularly hard by the recent §101 jurisprudence. The biotech and pharmaceutical industries have also seen a collapse in the proper legal protection for their innovative discoveries of new therapeutic treatments. One recent study found that the examination unit at the Patent Office responsible for reviewing personalized medicine inventions (art unit 1634) has rejected 86.4% of all patent applications since the Supreme Court’s decision in Mayo. Anecdotal evidence abounds of numerous rejections of patent applications on innovative medical treatments arising from extensive R&D, and the most prominent one was the invalidation of Sequenom’s patent on its groundbreaking innovation in prenatal diagnostic tests.

In this light, the decision on July 5, 2016 in Rapid Litigation Management v. CellzDirect is an extremely important legal development for an industry that relies on stable and effective patent rights to justify investing billions in R&D to produce the miracles that comprise basic medical care today. In CellzDirect, the trial court found unpatentable under § 101 a patent claiming new methods for freezing liver cells for use in “testing, diagnostic, and treating purposes.” The trial court asserted that such a patent was “directed to an ineligible law of nature,” because scientists have long known that these types of liver cells (hepatocytes) could be subjected to multiple freeze-thaw cycles.

In her opinion for a unanimous panel, Chief Judge Sharon Prost held that the method in this case is exactly the type of innovative process that should be secured in a patent. Reflecting the same methodological concern in Enfish and BASCOM, the CellzDirect court rejected the trial court’s dissection of the patent into its foundational “laws of nature” and conventional ideas long-known in the scientific field:

The claims are simply not directed to the ability of hepatocytes to survive multiple freeze-thaw cycles. Rather, the claims of the ’929 patent are directed to a new and useful laboratory technique for preserving hepatocytes. This type of constructive process, carried out by an artisan to achieve “a new and useful end,” is precisely the type of claim that is eligible for patenting.

In other words, merely because a patentable process operates on a subject matter that constitutes natural phenomena does not mean the patent improperly claims either those natural phenomena or the laws of nature that govern them. To hold otherwise fails to heed the Mayo Court’s warning that “all inventions at some level embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas,” and thus to dissect all patents down into these unpatentable foundations would “eviscerate patent law.” The CellzDirect court was explicit about this key methodological point in evaluating patents under § 101: “Just as in [the industrial process held valid by the Supreme Court in] Diehr, it is the particular ‘combination of steps’ that is patentable here”—the invention as a whole.

Conclusion

The U.S. has long prided itself as having a “gold standard” patent system—securing to innovators stable and effective property rights in their inventions and discoveries. As scholars and economic historians have long recognized, the patent system has been a key driver of America’s innovation economy for more than two hundred years. This is now threatened under the Supreme Court’s § 101 decisions and the “too broad” application of the Court’s highly generalized patent-eligibility tests to inventions in the high-tech and bio-pharmaceutical sectors. The shockingly high numbers of rejected applications at the Patent Office and of invalidation of patents by courts, as well as the general sense of legal uncertainty, are threatening the “gold standard” designation for the U.S. patent system. This threatens the startups, new jobs, and economic growth that the patent system has been proven to support. Hopefully, the recent Enfish and CellzDirect decisions are the first steps in bringing back to patent-eligibility doctrine both reason and clarity, two key requirements in the law that have been sorely lacking for inventors and companies working in the innovation economy.

Tags abstract idea, Adam Mossoff, Bilski, Bob Sachs, broken patent system, innovation, patent, patent litigation, patentability, Section 101, Supreme Court, USPTO

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Federal Circuit Threatens Innovation: Dissecting the Ariosa v. Sequenom Opinion

Post author By Joshua Grove
Post date June 23, 2015

By Patent Publius

Earlier this month, the Federal Circuit issued its opinion in Ariosa v. Sequenom, a closely-watched biotechnology case with significant repercussions for patent-eligibility analysis generally. Unfortunately, the Federal Circuit misapplies the Supreme Court’s analytical framework from Mayo v. Prometheus, striking down Sequenom’s important innovation for the prenatal diagnosis of fetal abnormalities. The shame here is that the Mayo opinion itself was unnecessarily broad, and the Federal Circuit has now interpreted it to be even broader.

Section 101 of the Patent Act provides that “[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter . . . may obtain a patent therefor,” but there are judicial exceptions for “laws of nature, natural phenomenon, and abstract ideas.” Those exceptions are relevant here, where the Federal Circuit considers whether the claimed method of using cell-free fetal DNA (“cffDNA”) to make diagnoses is patentable subject matter.

In the Mayo opinion, the Supreme Court established a two-step analysis for determining whether method claims merely “set forth laws of nature” or instead apply those natural laws with “additional features” so as to become patent-eligible processes. The first step looks at whether the claims are directed to a patent-ineligible law of nature, and the second step looks at whether additional elements “transform the nature of the claim” into something that amounts to more than a claim on the law of nature itself.

Applying Mayo to the case at hand, the Federal Circuit’s analysis of the first step is perfunctory:

In this case, the asserted claims of the ‘540 patent are directed to a multistep method that starts with cffDNA taken from a sample of maternal plasma or serum—a naturally occurring non-cellular fetal DNA that circulates freely in the blood stream of a pregnant woman. . . . It is undisputed that the existence of cffDNA in maternal blood is a natural phenomenon. . . . The method ends with paternally inherited cffDNA, which is also a natural phenomenon. The method therefore begins and ends with a natural phenomenon. Thus, the claims are directed to matter that is naturally occurring.

The Federal Circuit’s conclusion that the method “begins and ends with a natural phenomenon” tells us very little of how this principle is to be applied generally. Certainly, the method begins with a biological sample of maternal plasma or serum that contains paternally-inherited cffDNA, and it makes sense to say that it begins with a natural phenomenon. Of course, everything begins with a natural phenomenon, so this is hardly instructive.

But it’s inaccurate to say that the method simply ends with cffDNA. The method itself takes the miniscule amount of cffDNA found in the sample and exponentially amplifies it to detectable levels. The resulting substance, unlike the beginning sample, gains significant and new utility from a diagnostic perspective. What comes out of the process is an artificially-enriched substance that, unlike the maternal plasma or serum fed into the process, can be used for many diagnostic purposes. That is, the method ends with a substance that is anything but a natural phenomenon.

Applying the second step of the Mayo framework, the Federal Circuit finds that Sequenom’s claimed methods are not significantly transformative:

Like the patentee in Mayo, Sequenom contends that the claimed methods are patent eligible applications of a natural phenomenon, specifically a method for detecting paternally inherited cffDNA. Using methods like PCR to amplify and detect cffDNA was well-understood, routine, and conventional activity in 1997. The method at issue here amounts to a general instruction to doctors to apply routine, conventional techniques when seeking to detect cffDNA. Because the method steps were well-understood, conventional and routine, the method of detecting paternally inherited cffDNA is not new and useful. The only subject matter new and useful as of the date of the application was the discovery of the presence of cffDNA in maternal plasma or serum.

The last sentence is the most perplexing: The “discovery of the presence of cffDNA in maternal plasma or serum” is what sets Sequenom’s method apart from that which was “well-understood, routine, and conventional activity in 1997.” The problem here stems from the Federal Circuit’s failure to consider the claimed method as a whole, as it purportedly sets out to do: “[W]e next consider the elements of each claim both individually and ‘as an ordered combination’ to determine whether additional elements ‘transform the nature of the claim’ into a patent-eligible application.”

Undoubtedly, some parts of Sequenom’s method were already well-known. No one denies, for example, that some of the techniques involved in amplifying and then detecting cffDNA were, in their general features, already conventional activity in the field (e.g., PCR). What makes the Sequenom method patentable is the sum of its parts, that is, the method as a whole that the Federal Circuit acknowledges to contain the new and useful discovery of cffDNA in the maternal plasma or serum.

This is the principal feature of Sequenom’s claimed invention and its central argument throughout the litigation. Yet, the Federal Circuit relegates it to one of “Sequenom’s remaining arguments” and addresses it in a brief paragraph near the end of the opinion, where it inexplicably claims: “This argument implies that the inventive concept lies in the discovery of cffDNA in plasma or serum. Even if so, this is not the invention claimed by the ’540 patent.” On the contrary, this discovery is anything but conventional, and the method as a whole transforms a natural phenomenon into something both artificial and patentable.

Overbroad (and Dangerous) Principles

The overbreadth of the Federal Circuit’s analysis threatens diagnostic methods across the board. If a method of detecting a natural phenomenon is always “directed to” that natural phenomenon, as the Federal Circuit suggests, then all such methods are prima facie patent-ineligible under the first step of the Mayo framework and must fight the uphill battle under its second step. This is particularly troubling since virtually all diagnostic tests detect natural phenomena. Moreover, the Federal Circuit’s application of the second step of the Mayo framework looks at each part of the method individually, ignoring the claimed method as a whole.

Not only is this principle breathtakingly broad in the damage it could cause to the diagnostics industry, it is neither required by, nor even consistent with, the controlling case law. Only claims to natural phenomena are per se patent-ineligible; however, applications of natural phenomena are generally patentable. Detecting a natural phenomenon is not the same thing as the phenomenon itself. It is instead a specific application of that phenomenon. While the Federal Circuit states that applications of natural phenomena are patent-eligible, it quickly proceeds to categorically suggest a principle under which all diagnostic inventions may have one foot in the Section 101 grave.

Another overly-broad principle from the Federal Circuit opinion comes from this statement: “For process claims that encompass natural phenomenon, the process steps are the additional features that must be new and useful.” This may at first seem obvious and uncontroversial, but in the context of the rest of the opinion, it proves quite problematic. The Federal Circuit cites Parker v. Flook as support: “The process itself, not merely the mathematical algorithm, must be new and useful.” But note the subtle distinction between the two quotes. The Supreme Court discussed the “process itself,” while the Federal Circuit discusses the “process steps.”

This distinction has two important effects. First, it is one of many signals in the opinion that demonstrates the Federal Circuit’s improper dissection of the claimed method into its components parts. Rather than consider whether the “process itself” is “new and useful,” as the Flook opinion had done, the Federal Circuit analyzes each step individually. There’s no consideration of how the steps integrate into the process as a whole, and there’s no mention of whether that entire process claims something other than the natural phenomenon itself.

Second, the Federal Circuit looks at each step in a very general way and ignores the details of the steps that confer patent eligibility. For example, the opinion spends much time discussing how routine the PCR method was at the time of filing. But Sequenom never claimed the PCR method itself. The Federal Circuit fails to address Sequenom’s central argument: The claimed method is a new process of detecting cffDNA by devising a novel sample source from which to extract it, namely, maternal plasma or serum. The application and adaptation of known techniques in this inventive way to a newly-discovered sample source is not conventional.

Finally, the most problematic and new principle that may emerge from this opinion is a subtle, yet very significant, extension of Mayo to invalidate claims directed to routine and conventional applications of natural laws. Mayo teaches that the mere addition of what is purely routine and conventional at the time of filing cannot save a claim directed to a law of nature: “In particular, the steps in the claimed processes (apart from the natural laws themselves) involve well-understood, routine, conventional activity previously engaged in by researchers in the field.”

The Federal Circuit appears to exclude from the patent system a routine application of a law of nature, rather than, as Mayo requires, a law of nature to which merely routine activities have been appended. That is, if one skilled in the art could, after being informed of a newly-discovered law of nature, use routine skill to arrive at the claimed invention, then that claimed invention may be invalidated under the Federal Circuit’s reasoning.

This is contrary to Mayo, and it could conceivably invalidate huge swaths of meritorious inventions. Once the principles underlying a new method are known, application of those principles to devise that method will very often be obvious. The Supreme Court has been very consistent in saying that applications of laws of nature are patent-eligible, including those applications that would have been obvious in view of newly-discovered laws of nature. It is a subtle, but important, point to recognize that Mayo did not say the opposite, as the Federal Circuit now interprets it.

The Preemption Question

One potential bright spot in the Federal Circuit’s opinion is its treatment of preemption. Instead of being a test for patent eligibility, preemption is properly understood as being solely a policy underlying eligibility exclusions. It can at most serve as an after-the-fact check on whether an already-reached conclusion of eligibility is consistent with this policy. The Federal Circuit here mostly validates this position:

The Supreme Court has made clear that the principle of preemption is the basis for the judicial exceptions to patentability. Alice, 134 S. Ct at 2354 (“We have described the concern that drives this exclusionary principal as one of pre-emption”). For this reason, questions on preemption are inherent in and resolved by the § 101 analysis. . . . Where a patent’s claims are deemed only to disclose patent ineligible subject matter under the Mayo framework, as they are in this case, preemption concerns are fully addressed and made moot.

This may ultimately be a hollow victory, however. The Federal Circuit also says: “While preemption may signal patent ineligible subject matter, the absence of complete preemption does not demonstrate patent eligibility.” The problem here is that it is impossible to ever show complete preemption because it is impossible to know at the time of filing whether something outside the claims could also be conceived. Inventions are, by definition, unforeseeable.

Moreover, allowing anything less than complete preemption to be sufficient to invalidate a claim threatens to invalidate far too much subject matter. By their very nature, patents are preemptive. Allowing courts and patent examiners to freely draw the line between allowable and prohibited levels of preemption invites unpredictable and arbitrary decisions based on personal value judgments. That very problem arose here, where the district court held the claims invalid, at least in part, because they covered what the judge deemed to be “the only commercially viable way of detecting” the embodiment of the law of nature.

The Promising Potential in Judge Linn’s Concurrence

Judge Linn’s concurrence is promising, but it falls short of its full potential. Judge Linn does a better job than the majority in recognizing and understanding the legal significance of the important facts of this case:

[N]o one was amplifying and detecting paternally-inherited cffDNA using the plasma or serum of pregnant mothers. Indeed, the maternal plasma used to be “routinely discarded,” . . . because, as Dr. Evans testified, “nobody thought that fetal cell-free DNA would be present.”

It is encouraging to see that a Federal Circuit judge has finally gone on record to point out the problems caused by ever-broadening applications of Mayo:

I join the court’s opinion invalidating the claims of the ‘540 patent only because I am bound by the sweeping language of the test set out in Mayo Collaborative Services v. Prometheus Laboratories, Inc. . . . In my view, the breadth of the second part of the test was unnecessary to the decision reached in Mayo. This case represents the consequence—perhaps unintended—of that broad language in excluding a meritorious invention from the patent protection it deserves and should have been entitled to retain.

Judge Linn errs, however, in his acquiescence that Mayo requires the majority’s conclusion. Judge Linn’s concurrence generally reads more like a dissent, but he undercuts his own criticism of Mayo and its effects by calling his opinion a “concurrence.” As he laments:

The Supreme Court’s blanket dismissal of conventional post-solution steps leaves no room to distinguish Mayo from this case, even though here no one was amplifying and detecting paternally-inherited cffDNA using the plasma or serum of pregnant mothers.

But the second half of this sentence shows the critical distinction that makes Sequenom’s claims patent-eligible, even in view of Mayo. Unlike the claims analyzed in Mayo, Sequenom’s process is new and not routinely engaged in by researchers in the field. Judge Linn even states the point better elsewhere in his own concurrence:

Unlike in Mayo, the ‘540 patent claims a new method that should be patent eligible. While the instructions in the claims at issue in Mayo had been widely used by doctors—they had been measuring metabolites and recalculating dosages based on toxicity/inefficacy limits for years—here, the amplification and detection of cffDNA had never before been done.

Judge Linn should be praised for critiquing Mayo as bad law that has led to the invalidation of untold meritorious patent claims. Unfortunately, however, he may have unintentionally contributed to the expansive scope of Mayo about which he complains by failing to factually distinguish (and hence cabin) the Supreme Court’s opinion when presented with such a good opportunity to do so.

All told, the Federal Circuit’s opinion in Ariosa v. Sequenom is a predictable, yet unfortunate, application of the Supreme Court’s disastrous reasoning in Mayo. The unintended consequences of the Supreme Court’s opinion have been further realized in the Federal Circuit’s denial of Sequenom’s innovative claimed method for diagnosing fetal abnormalities. Only time will tell how many other innovations will suffer under the Supreme Court’s careless expansion of Section 101’s patent eligibility analysis.

Tags Ariosa, biotechnology, Federal Circuit, Flook, innovation, Judge Linn, Mayo, natural phenomenon, patent, patentability, preemption, Section 101, Sequenom, Supreme Court

Biotech Commercialization Gene Patents Innovation Patent Law Patentability Requirements Uncategorized

The Critical Role of Patents in the Development, Commercialization, and Utilization of Innovative Genetic Diagnostic Tests

Post author By Joshua Grove
Post date July 14, 2014

Last week, CPIP released an important new policy brief, The Critical Role of Patents in the Development, Commercialization, and Utilization of Innovative Genetic Diagnostic Tests, by Professor Chris Holman. Professor Holman explains the important role that patents play not only in attracting the capital investment needed to bring genetic tests to market, but also in incentivizing companies to invest in educating patients and their doctors about new tests and in facilitating insurance reimbursements for new tests. Professor Holman addresses the common mistaken assumption that patents negatively impact patient access to genetic diagnostic testing, concluding instead that patent protection is a critical spur for the innovation and commercialization of next-generation genetic diagnostic tests.

The full document (including endnotes) is available here, and we’ve also included the text (without endnotes) below.

The Critical Role of Patents in the Development, Commercialization, and Utilization of Innovative Genetic Diagnostic Tests

Christopher M. Holman

Genetic diagnostic testing is an increasingly high-profile subject in the minds of the public, academia, and policymakers. This increased attention was prompted in part by highly publicized events such as Angelina Jolie’s decision to undergo a preemptive double mastectomy based on the results of a genetic diagnostic test, followed shortly thereafter by a U.S. Supreme Court decision invalidating patent claims held by the company (Myriad Genetics) that developed the test used by Ms. Jolie. Although traditionally viewed as a relatively unglamorous sector of the healthcare market (accounting for less than 2% of total health care spending), genetic analysis and other innovative molecular diagnostics seem poised to become “a powerful element of the healthcare value chain,” playing an increasingly important role in the prediction, detection, and treatment of disease. “Personalized medicine,” a new term that refers to the pairing of a molecular diagnostic test with a patient-specific course of pharmaceutical treatment, represents a particularly promising avenue through which molecular diagnostics might improve therapeutic outcomes while containing healthcare costs.

Those involved in the development and commercialization of innovative molecular diagnostics stress the important role of effective intellectual property rights in attracting the substantial capital investment required to bring these products to market. Influential voices outside the innovation community, however, have argued strongly against patent protection for molecular diagnostics, claiming that such patents are overly broad, reduce patient access, and inhibit research that might otherwise lead to new and improved diagnostic tests. Most of these critics would acknowledge that strong patent protection is appropriate, and indeed critical, for the development of innovative drugs, in view of the huge cost of developing drugs and securing FDA marketing approval. They argue, however, that the same considerations do not apply to diagnostic tests. Unfortunately, their argument is based largely on the outdated and now-incorrect belief that diagnostic tests are developed by publicly-funded academics who are primarily motivated by non-patent incentives, and that commercialization of these tests is cheap and easy.

The critics have been heard and are finding resonance in the legislative, judicial, and executive branches. Legislation to limit the patentability of genetic inventions and the enforceability of genetic patents has been introduced in Congress, although not yet enacted. Omnibus patent reform legislation enacted in 2011 does contain a section requiring the U.S. Patent and Trademark Office (“PTO”) to conduct a study examining the “impact that current exclusive licensing and patents on genetic testing activity has on the practice of medicine, including but not limited to the interpretation of testing results and performance of testing procedures,” and to report back to Congress with recommendations as to how to deal with presumed problems with respect to the ability of health care providers “to provide the highest level of medical care to patients” and of innovators to improve upon existing tests. In the courts, the alleged impact of genetic diagnostic patents on genetic research and the availability of diagnostic testing played an important role in litigation brought by the ACLU against the genetic testing company Myriad Genetics, challenging the validity of Myriad’s so-called “gene patents.” The ACLU won before the Supreme Court. The Obama administration filed amicus briefs in the Myriad litigation arguing against patent eligibility for patent claims allegedly relating to genetic testing, and National Institutes of Health (NIH) Director Francis Collins has been an outspoken critic of patents on genetic tests.

The plaintiff’s victory in Myriad has not lessened the call for more severe restrictions on the availability of effective patent protection for innovative molecular diagnostics. When the Supreme Court invalidated some of Myriad’s patent claims relating to the BRCA breast cancer genes, a number of Myriad’s competitors were emboldened to enter the BRCA testing market, and Myriad responded by filing lawsuits alleging infringement of some of its remaining patent claims (patent claims that were not at issue in the previous litigation). In response, Sen. Patrick Leahy (D-Vt.) sent a letter to Francis Collins asking NIH to “use its march-in rights under the Bayh-Dole Act to force Myriad Genetics Inc. to license its patents related to testing for genetic mutations associated with breast and ovarian cancer.”

This essay addresses some of the criticisms that have been leveled against genetic diagnostic testing patents. It identifies the critical role that patents play not only in the discovery and development of new molecular diagnostic tests, but also in making these tests more accessible to the patients who can benefit from them. When we move beyond the improperly restricted and crabbed view of patents as incentivizing only discovery of new medical drugs or tests, we recognize that patents also have a fundamental role in incentivizing companies like Myriad to create markets for these new discoveries by investing in educating patients and their doctors and in facilitating the reimbursement of patients for the cost of the test via their insurance plans.

Molecular Diagnostic Tests and Personalized Medicine

To understand the important role of patents in molecular diagnostic testing, it is important to have a basic understanding of what these tests are and where they come from. This is important if only because there is substantial misinformation in the public policy debates about these innovative medical discoveries. Thus, a brief primer on the topic is in order.

Molecular diagnostic tests involve the detection and/or analysis of a molecular biomarker in a patient in order to discern clinically relevant information about that patient. Molecular biomarkers come in many forms – prostate-specific antigen (PSA), for example, is a protein biomarker used to diagnose prostate cancer, while high levels of glucose in the blood can serve as a biomarker for diabetes. Today some of the most promising biomarkers are genetic variations, which are detected by analyzing an individual’s genomic DNA. Some genetic variations in the human breast cancer genes BRCA1 and BRCA2, for example, can be used to predict the likelihood that an individual harboring that variation will develop breast or ovarian cancer. Although significant progress already has been made, scientists are just beginning to scratch the surface of the potential of molecular diagnostic testing. Research continues in the quest to identify and validate new biomarkers correlated with a host of diseases and disease outcomes.

Testing for molecular biomarkers is not only useful in the diagnosis and prognosis of disease; it can also be used to guide doctors in the best course of treatment tailored to the needs of an individual patient. Personalized medicine, for example, encompasses the use of molecular diagnostic testing to identify the best course of drug therapy for an individual patient by (1) identifying the best drug for that individual, or (2) predicting the optimal drug dosage for that particular patient in terms of safety and efficacy. In a case involving determining personalized levels of drug dosage, Mayo v. Prometheus, the Supreme Court recently invalidated patent claims covering a non-genetic molecular diagnostic test that enables doctors treating patients for Crohn’s disease to prescribe a drug dosage at a level that maximizes efficacy while minimizing the horrible side effects too often endured by patients before the test became available. In doing so, the Court overturned a decision by the Court of Appeals for the Federal Circuit which upheld the validity of the claims – the Federal Circuit’s decision explicitly acknowledged that the claims relate to methods of medical diagnosis and treatment which have until recently been assumed to constitute patentable subject matter.

The fundamental challenge in developing molecular diagnostic tests is identifying and validating clinically significant molecular biomarkers. The magnitude of this challenge is vastly underappreciated by those who argue against patent protection for these tests. It is true that some relatively rare genetic diseases such as sickle cell anemia, cystic fibrosis and Tay-Sachs are associated with specific genetic variations (sometimes referred to as mutations), and once those variations have been identified it is relatively straightforward for any competent clinical laboratory to test for the presence of a mutation that has been unambiguously associated with the disease. But these are the low hanging fruit. For the vast majority of human diseases which have a genetic component, the correlation between biomarker and clinically relevant information is much less straightforward, and substantial investment is necessary to support the lengthy and labor-intensive research efforts required to discern and validate the clinical significance of novel biomarkers.

With respect to any two individual humans there typically exists about 6 million genetic variations (referred to as polymorphisms) spread across the genome. Most comprise single nucleotide variations that occur on average about once in every 1000 nucleotides. Significantly, almost all of these polymorphisms are believed to be clinically irrelevant. Thus, the challenge is to identify that small cohort of human genetic variations that can function as useful biomarkers, and to assign and validate their clinical significance.

Compounding the difficulty is the fact that the clinical significance of most genetic variations is substantially affected by the influence of other genetic variations residing throughout the rest of the genome, oftentimes in a manner that is not additive, and by interactions with non-genetic environmental factors. For example, there is often an observed synergistic amplification of susceptibility to disease caused by the interaction of variations at multiple locations in the genome, or, conversely, a dampening of the effect of one variation caused by variations at other locations. It can be extremely difficult to identify and validate correlations for multifactorial genetic diseases of this type, which in large part explains the relatively modest progress that has been made in molecular diagnostic testing in the decade subsequent to the initial sequencing of the human genome.

For example, some genetic variations in the BRCA1 and BRCA2 breast cancer genes have been shown to be associated with an extremely high likelihood of developing cancer, while others are associated with a likelihood of developing cancer only somewhat higher than the general population. Many of the observed variations in the BRCA genes are believed to be neutral, having no cancer-related implications. In fact, even after years of research and millions of dollars in investments, we are still finding patients with variations in the BRCA genes for which the significance is currently unknown. These “variations of uncertain significance,” or VUSs, constitute a major limitation on the clinical usefulness of molecular diagnostic tests. Patents provide the incentive for the substantial up-front investment in gathering and analyzing the clinical data necessary to assign a predictive value to a VUS.

Shrinking Patent Protection for Molecular Diagnostics and Personalized Medicine

For years, innovative scientists and physicians working in diagnostics and personalized medicine have sought and obtained patent protection for diagnostic tests that are based on the detection and/or analysis of molecular biomarkers. While patent claims covering isolated and synthetic DNA molecules can play some role in this regard, the most direct and effective means of patenting a diagnostic test is by claiming the method itself. Unfortunately, the Supreme Court’s recent decisions in Mayo and Myriad have substantially impaired the ability of innovators to obtain effective patent protection for DNA molecules used in diagnostic testing and for diagnostic testing methods per se. Although Myriad has garnered more public attention, Mayo is likely a much more significant decision with respect to the patentability of diagnostic tests, since it most directly implicates the method claims which are so important for effective patent protection in this area of technology.

Three aspects of Mayo could prove extremely problematic for future patenting of molecular diagnostics in general. First, the Court adopted a very broad definition of the term “natural phenomena” as it is applied in the context of patent eligibility for discoveries in medical treatments. The Mayo Court’s definition of this term, which refers to facts of nature that are unpatentable, appears to encompass the discovery of clinically significant biomarkers that is the essence of innovation in diagnostics and personalized medicine. Second, the Court held that in order to be patent eligible, a method claim must include some “inventive concept” above and beyond the discovery of a natural phenomenon. And third, the Court declared that a method claim is patent ineligible if it “preempts” all practical applications of a natural phenomenon.

A recent district court decision, Ariosa Diagnostics v. Sequenom, illustrates the profoundly troubling implications of Mayo for patents on molecular diagnostic methods. On a motion for summary judgment, the judge invalidated all of the genetic diagnostic testing method claims at issue in the case for failure to satisfy the requirements of patent eligibility as set forth in Mayo. In particular, the judge held that the claims failed the “inventive concept” test because they encompassed conventional methods of DNA analysis, and failed the “preemption” test based on a determination that the claims would cover all “commercially viable” methods of performing the test as of the filing date of the patent.

If this is indeed the standard by which the validity of molecular diagnostic claims will be assessed, the prospect for effective patent protection appears bleak. Innovation in molecular diagnostics resides primarily in the identification and characterization of biomarkers of clinical significance, e.g., genetic variations useful in the diagnosis and prognosis of disease. Once the biomarker and its clinically significant correlation has been identified, conventional forms of DNA analysis involving techniques such as PCR amplification and/or labeled hybridization probes are employed for diagnostic testing. A patent eligibility test that bars the inventor from claiming the use of conventional DNA analysis techniques will render the patent ineffective in blocking competitors from entering the market and thereby free-riding on the initial inventor’s substantial investments in the discovery of this molecular biomarker.

This troubling concern is not mere prophecy. In Ariosa Diagnostics,the judge held that Mayo prohibits any patent claim that encompasses all “commercially viable” means of testing for a biomarker. This decision renders any protection afforded by a valid diagnostic patent illusory. After all, how many venture capitalists are interested in investing hundreds of millions of dollars in a start-up diagnostic company whose patents are unable to preclude competition by free-riders using alternate, unpatented (but still commercially viable) methods for detecting the same biomarkers that the start-up invested in identifying?

Furthermore, in Myriad, the Supreme Court held that isolated DNA molecules corresponding to naturally occurring DNA are patent ineligible, absent some significant structural difference compared to the naturally occurring molecule. This holding is problematic for innovators in genetic testing because the DNA molecules used in the course of genetic diagnostic testing, such as DNA primers for PCR and hybridization probes, are inherently highly similar in chemical structure to naturally occurring DNA molecules, and thus apparently patent ineligible under Myriad. A district court recently adopted this view in a decision denying the patentee’s motion for preliminary injunction against an alleged infringer in a lawsuit commenced post-Myriad, finding that product claims directed towards DNA primers useful in BRCA genetic testing are likely invalid under Myriad. The PTO recently issued guidance adopting the same restrictive interpretation of Myriad with respect to DNA primer claims.

The Role of Patents in Molecular Diagnostic R&D

The Unfounded Assumption that Patents Inhibit Research

The plaintiffs in Myriad argued that Myriad’s patents inhibit research that might otherwise lead to improvements in BRCA testing. Unfortunately, many share this pessimistic view of the role of patents in the research and development of molecular diagnostic tests, and this deeply mistaken notion found support in a number of amicus briefs filed with the Supreme Court in support of the Myriad plaintiffs. A typical example was an amicus brief filed by the American Medical Association, which argued that patents are not only unnecessary to incentivize the optimal level of innovation in genetic diagnostic tests, but that genetic diagnostic patents allegedly inhibit research that could develop improved tests.

The argument that patents inhibit research in genetic diagnostics is based largely on an unfounded assumption that the existence of a patent necessarily precludes research on the patented subject matter. In fact, empirical studies have shown that basic researchers follow a norm of ignoring patent infringement, and that patent owners do not enforce their patents against basic researchers, resulting in a de facto research exemption from liability. Patent owners have little if any incentive to enforce patents against basic researchers – to the contrary, patent owners often welcome third-party basic research on patented subject matter, since it tends to promote and enhance the value of the patented subject matter.

Myriad’s policy toward basic research on the BRCA genes is a good case in point. During the time in which Myriad’s BRCA patents have been in force, basic research on the BRCA genes has flourished in both the US and abroad. While patent-skeptics assume that Myriad’s patents preclude research on the genes, in fact thousands of research articles relating to the genes have been published, many by researchers at leading US academic institutions such as the University of Pennsylvania, the University of Chicago, Emory University, and the University of Rochester. While it has been widely publicized that Myriad has on occasion threatened lawsuits against academic institutions that engaged in genetic diagnostic testing, it is important to bear in mind that these academic institutions were invariably engaged in commercial genetic testing, not basic research – i.e., they were charging patients for the testing services and thus competed with Myriad.

In attempting to support their assertion that patents harm research and development of diagnostic tests, patent-skeptics often point to the “SACGHS Report,” a 2010 report on the impact of patents on patient access to genetic tests that was prepared by the Secretary of Health and Human Services’ Advisory Committee on Genetics, Health, and Society. Despite these citations to the SACGHS Report, the case studies presented in the SACGHS Report for the most part show exactly the opposite. For example, the Report’s case study on the impact of patents and patent licensing practices on access to genetic testing for hereditary hemochromatosis concluded not only that “concerns regarding inhibition of research due to the HFE gene patents do not seem to be supported,” but that substantial basic research aimed at identifying new genes and genetic variations associated with hemochromatosis, along with new methods of testing for these biomarkers, were proceeding in spite of third-party patents. Similar findings were reported with respect to genetic tests investigated in other case studies, including the tests for cystic fibrosis, hearing loss, and Alzheimer’s disease.

The Important Role of Patents in the Development and Commercialization of Diagnostic Tests

While patents do not inhibit basic research, they do play a critical role in incentivizing the substantial investment required to translate the results of basic research into high-quality, commercially available diagnostic tests that meaningfully impact people’s lives. In a recent report, the President’s Council of Advisors on Science and Technology found that the “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.” Similarly, commentators familiar with the challenges associated with the development and commercialization of diagnostics have concluded that patents are vital “to incentivize the significant investment required” for clinical research in personalized medicine. And while the AMA came out against genetic diagnostic testing patents in Myriad, the Association of American Physicians and Surgeons (“AAPS,” a national nonprofit association representing thousands of physicians) filed an amicus brief in support of Myriad’s patents, explaining that “advancing patients interests means supporting and defending incentives for medical innovations.”

Innovators in molecular diagnostics rely heavily on venture capital to fund the years of research, development, and validation necessary to bring a novel diagnostic product to market, and the decision of whether to invest is heavily dependent upon the availability of effective patent protection. Weakening of patent protection for molecular diagnostics will inevitably cause venture capitalists to shift their investments to other sectors of the economy. Not surprisingly, the National Venture Capital Association filed an amicus brief with the Supreme Court in support of Myriad.

One of the most compelling amicus briefs submitted to the Supreme Court insupport of Myriad was filed by Lynch Syndrome International (“LSI”), an all-volunteer organization founded and governed by Lynch syndrome survivors, their families, and health care professionals who treat Lynch syndrome. Lynch syndrome is a genetic condition caused by genetic variations in certain genes that result in a greatly increased risk of developing colon cancer. Lynch syndrome and BRCA mutations are highly analogous, with one important difference – patents in the area of Lynch syndrome have been nonexclusively licensed, so there has been no single provider to invest in developing and improving genetic tests for Lynch syndrome, nor in making the test widely available to the patients who could benefit from it. In its brief, LSI argues passionately for greater patent protection in the area of genetic diagnostic testing, in the hope that patent exclusivity might incentivize a patent owner to invest in Lynch syndrome in a manner comparable to Myriad’s investment in BRCA testing.

LSI explains that:

The development and commercialization of genetic tests require significant amounts of capital, but capital sources will not provide the necessary funding unless the newly developed tests will have patent protection. Only patent protection will assure the capital sources of sufficient investment return to make the provision of funding worthwhile.

LSI’s brief goes on to urge the Supreme Court to maintain patent eligibility for genetic tests in the hope that patents might provide incentives for the development of high-quality tests comparable to those available for BRCA thanks to the investments made by Myriad. LSI points to the long odds against success facing start-up companies like Myriad, noting that most start-up companies fail, particularly in the area of diagnostics. In the words of LSI:

Myriad’s survival, due largely to patent eligibility for genetic tests, has been a miracle for BRCA1 and BRCA2 patients: without Myriad, it is possible that only fragmented and potentially unregulated testing would be available. Lynch syndrome patients desperately need access to the quality testing that Myriad has been able to provide to BRCA1 and BRCA2 patients.

While the SACGHS Report found little evidence that patents impede basic research, it also found (incorrectly) that patents are largely unnecessary for genetic research, based largely on an assumption that genetic research is primarily conducted by academics who are not particularly interested in obtaining patents. The Report opines that while patents incentivize some private investment in genetic research, this private funding is “supplemental to the significant federal government funding in this area.” In conclusion, the Report states that “patent-derived exclusive rights are neither necessary nor sufficient conditions for the development of genetic test kits and laboratory-develop tests.” But these conclusions are seriously flawed, as explained below.

When the Report assumes that most genetic research is conducted by academic researchers, it is specifically referring to the identification of genes associated with genetic disease. While finding a gene associated with genetic disease is an important first step, the Report fails to take into account the much more difficult and costly research required to discern and validate the clinical significance of genetic variations. The Report’s conclusions, based on an analysis of the relatively straightforward genetic diseases that have been the basis for the first round of genetic diagnostic tests, are largely inapplicable to the next generation of diagnostic tests, where the correlation between genetic variation and clinical significance will be much more attenuated and difficult to establish.

The BRCA genes provide a good example of this. While the discovery of the genes in the 1990s was an important first step, the real work began after the genes were identified, as Myriad and others sought to distinguish the clinically significant variations in the BRCA genes from the clinically insignificant, and to quantify and validate the likelihood of cancer for patients having clinically significant variations. Some variations have been shown to correspond with only a marginal likelihood of cancer, others with a very high likelihood. Myriad reports that even today 3% of the variations it finds when it tests patients are still of unknown significance, and this is after performing thousands of tests and compiling enormous amounts of data. In Europe, where for years Myriad has as a practical matter not enforced its patents, many independent laboratories perform BRCA tests. The number of variations of uncertain significance in Europe is much higher than in the US, not surprising since without an exclusive provider there is less incentive and ability to gather and analyze the data necessary to assign significance to ambiguous variations.

Celera Diagnostics, a private-sector developer of advanced diagnostic tests, made this point in a comment submitted in connection with the SACGHS Report:

Even though the Draft Report suggests that scientists who search for gene-disease associations may not be motivated by the prospect of receiving a patent, they cannot conduct this type of research without considerable capital and resources. In our experience, meaningful gene-disease associations are confirmed only if the initial discoveries are followed by large scale replication and validation studies using multiple sample sets, the costs of which are prohibitive for many research groups. Private investors who provide funding for such research invariably look to patents that result from such work as a way of protecting their investment.

The SACGHS Report concluded that patents are unnecessary for the development and commercialization of diagnostic test, but that conclusion was based on an unrealistic assumption that the cost of developing a sequencing-based diagnostic test is in the range of $8,000-$10,000. While this paltry sum might have been sufficient for the development and commercialization of the simple diagnostic tests considered by SACGHS in preparing its Report, it is orders of magnitude short of the investment required for the critical next generation of diagnostic tests being developed by companies such as Myriad, Celera, and Genomic Health.

Furthermore, patents also promote innovation by facilitating collaboration and coordination between firms, which will be particularly important in the development of personalized medicine. For example, the pairing of the cancer drug Herceptin with a companion genetic diagnostic test that identifies patients likely to benefit from treatment with Herceptin represents one of the first successful implementations of personalized medicine. Herceptin, a biotechnology drug developed by Genentech, is only effective for a subpopulation representing about 30% of breast cancer patients, but for those for which it is effective it can reduce the recurrence of a tumor by 52%. Another pharmaceutical company, Abbott, developed the companion genetic diagnostic test used to distinguish between patients who will benefit from Herceptin and those who will not. The distinction is important because it allows doctors to rapidly begin Herceptin treatment for patients who will benefit from it, while avoiding the high cost and delay that result from trying Herceptin on a patient that, for genetic reasons, will not respond to the treatment. Patents play an important role in incentivizing companies like Abbott to develop a companion diagnostic, as well as facilitating the collaboration necessary to effectively pair one company’s diagnostic with another company’s drug.

Now that Myriad’s patent protection has been weakened, some argue that the company should make its proprietary data freely available in order to allow competitors to improve their tests. At one time Myriad did share this data, but in recent years it has adopted a policy of maintaining much of it as a trade secret. Of course, this is exactly the response one would predict in the face of weakened patent protection. No company is likely to invest in the creation of a valuable database if competitors are free to appropriate the value of the data. An important attribute of patents is that they encourage the disclosure of information that in the absence of the patent would likely be kept as a trade secret. Indeed, the SACGHS Report explicitly recognized that an absence of patent protection promotes secrecy, and that such “secrecy is undesirable because the public is denied new knowledge.”

The Important Role of Patents in Promoting Access

One of the main complaints leveled against patents on genetic diagnostic tests is that a patent owner like Myriad is able to charge a higher price as the exclusive test provider, which limits access for patients who cannot afford the test. A study included in the SACGHS Report attempted to assess this allegation by comparing the cost for Myriad’s BRCA test with the genetic test for Lynch syndrome. When normalized for the relative sizes of the genes, the Report found that Myriad charges “little if any price premium” for its exclusively controlled BRCA testing relative to the price charged for nonexclusively licensed testing of the Lynch genes. The Report concluded that this “surprising” finding “suggests that the main market impact of the BRCA patents is not on price but rather on volume, by directing BRCA full-sequence testing in the United States to Myriad, the sole provider.”

While the prices of BRCA and Lynch syndrome testing are comparable, many more BRCA tests are performed in the US compared to Lynch syndrome testing, suggesting that, at least with respect to these two tests, patent exclusivity actually serves to enhance patient access. Epidemiologically the two syndromes are quite similar – both have a similar prevalence in the overall population and in cancer populations, both can result in drastic increases in the risk of developing cancer, and breast and colon cancer are two of the leading causes of cancer death in the country. Prior to the Myriad decision there were 15 providers of full sequence Lynch syndrome testing in the US, and only one authorized provider of full sequence BRCA testing (Myriad). However, in the period from June 2010 through March 2013 nearly 5 times as many patients in the US received BRCA testing than testing for Lynch syndrome (339,294 vs. 70,294).

One explanation for the discrepancy could lie in the relative quality of the tests. The turnaround time for Lynch syndrome testing results is reportedly longer than that of Myriad’s BRCA tests, and the VUS rate is much higher for Lynch syndrome (15-30% for non-Myriad Lynch testing vs. 3% for Myriad BRCA testing). The amicus brief filed by LSI specifically noted the superiority of Myriad’s BRCA test, which LSI attributed to the patent exclusivity enjoyed by Myriad with respect to the BRCA genes.

Increased public awareness of BRCA testing relative to Lynch syndrome testing is likely to account for much of the discrepancy in usage of the tests. The SACGHS Report specifically found that the “incentive to advertise the service and broaden the market is stronger for a monopoly provider than in a shared market because a monopolist will gain the full benefit of market expansion.” According to the Report, one of the social benefits of patents is that they incentivize an exclusive test provider like Myriad to invest in creating more public knowledge of the availability of genetic tests. The Report acknowledges a clear “link between [Myriad’s] status as a single provider and incentives for direct-to-consumer advertising, with single provider status in this case associated with exclusive patent rights for BRCA testing.”

A Center for Disease Control (CDC) survey found an increase in BRCA test requests and questions about testing among women, and an increase in test-ordering among physicians and providers, in cities where Myriad invested in direct-to-consumer “public awareness campaigns.” The SACGHS Report noted that “[t]he overall impact of a DTC advertising campaign on the Kaiser Permanente health system in Denver was a more than two-fold increase in number of women in the high risk category getting tested, a more than three-fold surge in contacts about testing.” Another study showed that high-risk women—those eligible for BRCA testing based on family history—were three times as likely to get tested following a physician recommendation as those who did not get such a recommendation.

Ironically, while Myriad fought to inform patients and healthcare providers about the availability of BRCA testing, many policymakers argued in favor of restricting patient access to the results of these tests. For example, the Working Group of Stanford’s Program in Genomics, Ethics and Society recommended that ‘for most people, testing for BRCA1 and BRCA2 mutations is not appropriate.’ Similarly, NIH director Francis Collins testified before Congress that the results of genetic testing for BRCA mutations should generally not be made available to patients. With respect to BRCA testing, patents have played an important role in empowering patients to take control of their own their own genetic information, in the face of a medical establishment that sought to limit patient access to this information.

One of the most formidable obstacles facing patients in need of genetic diagnostic testing services is insurance reimbursement. Patents play an important role in overcoming this obstacle, by providing an incentive for patent owners to work with insurance companies to ensure that a maximum number of patients will be able to get insurance reimbursement for testing. For example, in 1995 only 4% of insurance providers allowed reimbursement for BRCA genetic testing. By 2008 Myriad was able to report that it had established contracts or payment agreements with over 300 carriers and has received reimbursement from over 2500 health plans, reducing the number of self-pay patients to single-digit percentages of its clientele. By 2010 BRCA genetic testing in the U.S. was covered for roughly 95% of those requesting tests, and reimbursed to cover 90% of their charges. In contrast, non-profit diagnostic testing services in many cases charge patients upfront for genetic testing, and require patients to seek their own reimbursement from their insurance company, which can be slow in coming, assuming it comes at all.

Conclusion

Arguments in favor of reining in the availability of effective patent protection in the area of genetic diagnostic testing are based largely on two fundamental misconceptions regarding the role of patents in this important area of technological innovation. The first is the mistaken assumption that patents negatively impact patient access to genetic diagnostic testing by preventing research that might lead to new or improved versions of a genetic test and by increasing the cost of testing services. The second is the failure to appreciate the substantial positive role patents play in in the development and utilization of genetic diagnostic tests. In fact, patents have little if any negative impact on basic research, and have been proven to significantly improve patient access to advanced diagnostic testing services by incentivizing the substantial investment that is necessary not only to bring these tests to market, but also to educate patients and their doctors with respect to the availability of the tests, and to work with third-party payers to expand patients’ eligibly for reimbursement. Next-generation technologies are poised to dramatically improve healthcare and patient outcomes, but this will only occur if effective and enforceable patent protection is available as the necessary spur for innovation and commercialization.

High Tech Industry Innovation Intellectual Property Theory Internet Inventors Patent Law Patent Theory Patentability Requirements Software Patent Supreme Court Uncategorized

Alice Gets the Most Important Question Right

Post author By Joshua Grove
Post date June 19, 2014

By far the most important takeaway from today’s Supreme Court decision in Alice Corp. v. CLS Bank is the Court’s acknowledgment that “many computer-implemented claims are formally addressed to patent-eligible subject matter.” Despite failing to alleviate the profound confusion caused by its recent §101 analysis in cases like Bilski, Myriad, Mayo, and plenty of earlier cases going all the way back to Benson, the Court once and for all put to rest the absurd notion that computer-implemented inventions are not patentable under §101.

To its credit, the Alice Court issued its opinion without once using the term “software patent,” or even the term “software.” Many people don’t realize that this is not a term of art in patent law. There is no category of “software patents” at the PTO, although they do have classifications for every type of invention. The term is also not an official category in any statutes or court decisions. Instead, “software patent” is merely a pejorative, rhetorical term used by patent-skeptics in the patent policy debate. One hears endless arguments about “all those crappy software patents,” or how we need to “fix the software patent problem,” as if there is something deeply wrong with providing patent protection for inventions implemented through software. But from an inventive or technological standpoint, the notion of creating a separate category of “software patents” doesn’t even make sense. Any process that is implemented through software could also be implemented through hardware (as pointed out succinctly in the IEEE’s amicus brief in Alice), and the efficiencies and design decisions that guide the choice between hardware and software are essentially irrelevant to the core patentability requirements under the Patent Act.

Of course, the Alice Court’s decision still leaves inventors (not to mention patent examiners, lawyers, and judges) with shockingly little guidance for determining whether a claim is “directed to a patent-ineligible concept,” such as an “abstract idea,” and if so, whether it “contains an ‘inventive’ concept sufficient to ‘transform’ the claimed abstract idea into a patent-eligible application.” Citing Mayo, the Court again acknowledges that, when broken down into their basic elements, all inventions rely upon abstract ideas, natural phenomena, or laws of nature. If that’s the case, we might ask why the Court added any of these exceptions into its §101 analysis in the first place. After all, the Court’s “inventive concept” test for saving claims that are directed at abstract ideas really just looks like a hybrid novelty/non-obviousness determination.

Despite the remaining doctrinal confusion about how to apply the Court’s various pronouncements about which inventions are “abstract ideas” or “laws of nature” and which are not, the Court deserves credit for getting the most important question right. At long last, it laid to rest the ridiculous argument that software isn’t patentable. Are claims to computer-implemented inventions patent-eligible subject matter? Of course they are. Inventors in the high-tech industry can at least breathe a sigh of relief. The Court has expressly recognized that the countless incredible technological inventions that form the bedrock of our innovation economy deserve patent protection.

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