This is the fourth of a five-part series. The first three parts appeared in the 15 February, 29 March, and 26 July issues of Science. The final part will be published in the 1 November issue.

In 1991, a federal court decided a dispute between biopharmaceutical companies Amgen and Genetics Institute over ownership of the patent on recombinant erythropoietin in Amgen’s favor. At the time, Amgen had a market capitalization of $9 billion. Today the figure exceeds $60 billion and sales of erythropoietin and related products bring Amgen $3 billion each year. Wyeth, meanwhile, acquired Genetics Institute for $1.3 billion in 1996. “Amgen’s patent portfolio protects $3 billion in annual sales,” says John Storella, vice president of intellectual property at Ciphergen. “It indicates that patents matter.”

Managing and patenting intellectual property (IP) is just as mission critical for long-established pharmaceutical companies. Big pharmas assert that protecting discoveries and other valuable information allows them to safeguard their investments in producing blockbuster drugs and to ensure a return on the large investment made in discovering, testing, and bringing a drug to market. “Nobody in the industry would deny that it’s absolutely vital,” says Clive Morris, head of patents, pharma and generics for Novartis, the multinational pharma based in Switzerland. “Otherwise drugs simply wouldn’t be developed.”

The biotechnology industry claims its own benefits from IP and the patent system. American biotech firms raised over $32 billion in investments in 2000, up from $11 billion in the prior year. The trans–Atlantic market is learning quickly from the successes and failures of U.S. organizations. European firms have started to become significant players in the biotech business. The net result: more intellectual property issues for scientists, lawyers, executives, and everyone else in the industry.

Patent protection has its critics. They argue that the system encourages corporate monopolies that work to the detriment of the research process and consumers of the products that stem from it. Nevertheless, the current system carries great weight in the life science business.

WHAT IS IP?

The term intellectual property refers to a wide range of rights associated with inventions, discoveries, product designs, and other creations. Some of the rights, notably patents, have more characteristics of property than others, such as trade secrets. A patent grants the right to exclude others from using an invention. Trade secrets, in contrast, are less protected if others gain access to them. However, trade secrets offer some protection when patenting is not possible or not chosen because of the publication aspects of patents.

Patent protection provides a good method of protecting IP when secrecy is not required. To get a patent, an owner must file an application that includes full disclosure of the invention and how to make and use it. In many countries, this disclosure is made public 18 months after the application’s earliest filing date. In the United States, the disclosure may not be made public until the patent is issued. However, patent closures will also be made public at 18 months if corresponding foreign applications have been field in early publication countries. Once the patent application is on file, disclosure will not jeopardize the applicant’s ability to obtain the patent.

A patent gives the inventor the right to exclude others from making, using, and selling an invention for 20 years after the application is first filed. During the time when the patent is in force, an inventor may choose to make and sell the invention, or to license it to others on an exclusive or nonexclusive basis.

Patent protection has three basic requirements: novelty, utility, and nonobviousness. Novelty means that the invention was not known before. Determining this usually involves an exhaustive search of prior art to determine what knowledge existed in a field at the time the invention was made. Utility addresses the need for an invention to have a practical application, as opposed to being basic knowledge. The interpretation of this requirement has changed in recent years, but its essence remains. It distinguishes between basic discoveries that are more likely to be used effectively if left in the public domain and more practical technological applications that may require a patent to ensure adequate incentives for commercial development. The nonobvious test explores whether the invention represents a significant enough advance over what was previously known to justify patent protection.

DIFFERENT PURPOSES

Patents and licensing technology play critical roles for life science organizations as diverse as pharmas, manufacturers of instruments and reagents, biotechnology companies, academic institutions, and government laboratories. However, patents don’t serve the same purpose for each of these organizations. Biotechnology firms and pharmaceutical companies, in particular, value patents for very different reasons.

Biotechnology firms typically need to raise capital to fund their research operations long before they have a product to sell on the market. For these companies, developing a portfolio of protected intellectual property can be critical at an early stage in their research and development process. This portfolio will likely be critical to investors who want to see some evidence of significant earnings potential in the future. “Funding only follows a strong IP position,” says Carl Feldbaum, president of the Biotechnology Industry Organization (BIO). “Patents have served as an asset for garnering venture capital. They provide incentives for companies and research institutions to view biotechnology as a viable market.”

Barbara Caufield, executive vice president and general counsel of array producer Affymetrix, outlines the specific ways in which IP protection helps biotech startups. “We got our first patent in1989,” she recalls. “Since then our intellectual property portfolio has done four things. Early on, when biotechnology was young, it helped value the company for investors. It also allowed the public to evaluate the company’s market value. Third, it allowed people to feel confident investing in research opportunities as collaborators or users of the technology; they could look at the patent portfolio and the published articles and understand what the patents were all about. Finally, it allows companies to be compared one with another, locally and internationally.”

PURSUIT OF PROTECTION

Pharmaceutical companies do not need to raise outside capital for new projects. They use the profits from existing products to fund new projects. But they do want to protect the intellectual capital that they develop through their own in-house research or by acquisitions. “We pursue all ways of protecting our drug products and take a defensive approach to protecting our research tools,” says Morris of Novartis. “If we don’t patent our research tools we’ll get gazumped.”

Companies that provide tools, technologies, and reagents for life science research have a slightly different interest in protecting their intellectual property. “It’s quite important to distinguish between the two sides of our business,” explains Robert Coleman, chief scientific officer of British drug discovery company Pharmagene. “If you’re into pharmaceuticals, it would be difficult to justify spending millions and millions of pounds without the monopoly that a patent can provide. In our case, patenting is relevant to the new uses we’re finding for compounds that don’t have patent protection. We spend a lot of our time deciding how what our compounds do is novel and how they can be protected.”

Why is protection important to technology providers? “A strong IP position provides us with a barrier to our competition. It gives us the ability to price more effectively and contributes to our margin,” says August Sick, vice president of business development for Invitrogen. “Patent protection has enabled us to access other companies’ technology, using our own IP as trading chips in discussions and negotiations,” adds Catriona Hammer, vice president of intellectual property for Amersham Biosciences. “It also protects our R&D investments. Competitors have to work around our patents.”

Plainly IP protection has a progressive effect on the life science industry. Patents permit the commercialization of new technologies; new technologies enable advances in science; and advances in science push the drug discovery process forward.

PUBLIC SKEPTICISM

On the other hand, the patent system stirs plenty of controversy inside and outside the laboratory. Some researchers argue that patents restrict the flow of new technology by limiting the free use of certain protected research tools. Consumers of drugs and other end products of life science echo that criticism. “There’s a general sentiment that patents are inherently bad for the public as they drive up prices; the public sees a drop in prices when patents expire,” explains Laurie Axford, counsel specializing in intellectual property for life science and health care at law firm Morrison and Foerster, LLP. “They believe that patents prevent things entering the marketplace.”

Ciphergen’s Storella agrees. “There is perpetual tension between the desire of technical companies to get broad IP rights on their inventions and the public’s suspicion of those efforts,” he says. “Companies always try to get broad patent claims and to extend their patents. The public sees patents as driving up costs and permitting monopolies.”

BIO’s Feldbaum attributes some of the public criticism to misunderstanding of the patent system. “Most legislators don’t know what a gene is,” he states. “Many people don’t know what a patent is. When you get them together you can have trouble.”

Members of the industry argue that IP protection offers benefits to consumers in the laboratory and the general public. “There are two classes of user: the product end user – the consumer – and the technical end user – the researcher,” says Axford. “The benefit to the researchers is the classical tradeoff for obtaining patent protection. Once the patent becomes effective, companies can teach researchers to use it. Researchers can then combine the teaching from more than one field to contribute to drug design. That ultimately benefits the consumer.”

Feldbaum uses numbers to make the same point. “As a result of the issuance of patents, 130 vaccines and therapeutics and 350 products have moved into the pipeline,” he says. “It has also produced over 500 diagnostic tests for various diseases.”

A DELICATE BALANCE

Jim Haley of Fish & Neave, a New York City law firm whose IP practice dates back to the Wright Brothers, amplifies that point. “From the standpoint of John Q. Public, there’s value in having discoveries available to everyone,” he says. “But there has to be some balance between encouraging disclosures to promote advances in technology and not allowing people to use patent inventions for limited patent terms.”

In other words, the system should maintain a delicate balance between protecting inventors’ rights and making research tools and inventions available to as many researchers as possible. The business of basic research has relied heavily on past discoveries that researchers left in the public domain. On the other hand, commercial development of certain tools and technologies would not present good investments to a company that could not protect for some limited time the inventions developed by their scientists. Such potential research tools might go undeveloped and as a result, not be made available for researchers to use. “You have to think of patents being the cost of innovation,” says Ciphergen’s Storella. “Users may be unhappy that patents reduce their ability to use products or increase costs. But there’s very little chance that the technologies will get out there without patent protection. Technology has to exist before it’s used.”

Those arguments come against the background of a legal system with its own difficulties in interpreting IP laws. “There is not much scientific background in genetics in the district courts, circuit courts, or even the Supreme Court,” Feldbaum says. “That can lead to inconsistent decisions.” In response, BIO has set up what it calls its Biojudiciary program. The goal: to provide federal judges and their law courts with accurate information on life science.

Solid information is critical because intellectual property law doesn’t stay static. Lawyers and scientists agree that several patents issued early in the biotechnology revolution were overly broad. “One of the big issues that I see involves the quality and validity of patents,” says Ed Yoshida, senior director of legal affairs at Rosetta Biosoftware. “The existence of patents of questionable validity presents a problem when they are in an area in which a company needs a license. The cost of patent litigation usually runs into the millions of dollars.”

BROAD VS. NARROW

Not surprisingly, life science companies make their patent claims as wide as possible. “They typically try to patent a new target and any drugs that might interact with it,” says Novartis’s Morris. “The problem is that the drugs may not yet have been discovered.” Increasingly, though, the courts and patent offices require patentees and patent applicants to prove real world, credible use for genes and other items they want to patent. “You see courts holding claims too broad as applicants try to claim the future before it happens,” says Haley of law firm Fish & Neave. “Reach – through claims that try to cover products that have not been invented yet defeat the basic bargain of any patent system – teaching how to make and use the invention in exchange for a limited monopoly to exclude others from using it during the patent term.”

European patent organizations have come to a similar conclusion. “We can no longer obtain patents on pure DNA sequences,” says Michael Schneider, patent and trademark attorney in the Munich office of pan-European law firm Hammonds. “You have to indicate the function at the filing date.”

Another bubbling issue concerns the ability of the United States Patent and Trademark Office (PTO) to deal with growing numbers of increasingly complex patent applications in life science. This year alone the office expects to receive about 340,000 patent applications, adding to the backlog of over 400,000 applications waiting to be processed. In June, the office announced a series of changes in its operations that would substantially reduce the time required to obtain a patent. The essence of this change is that approved outside vendors will carry out the initial search, currently conducted by the PTO.

In addition, says Axford of Morrison and Foerster, “the PTO is undertaking to fund examination of more complex patents. You’ll pay a premium for complex patent applications – those with numerous claims, for example. That additional revenue will hopefully give examiners more time to consider the applications.” That may prove difficult. “I recently met with patent commissioner James Rogan to talk about keeping PTO funds in the PTO,” says BIO’s Feldbaum. “Congress has got into a bad habit of using those funds as a congressional slush fund.”

Europe has its own unique patent problems. “One issue,” says Pharmagene’s group legal counsel John Murphy, “is the failure of the European Union to agree on proposals for a community patent, with economies that benefit smaller companies, and to bring some consistency in how patents are enforced and interpreted. A European patent today can be interpreted and enforced in different ways in the EU’s various member countries.”

OBTAINING THE IP

To arrive at a patent or licensing situation, a company must first obtain usable IP. The obvious location for gathering IP is the corporate research laboratory. But for most life science firms, and particularly the larger ones, that no longer suffices. Even giant pharmas recognize that their own research teams can’t cover the scientific waterfront. So they set out to obtain extra IP and the products and technologies that they protect through licenses, partnerships, mergers and acquisitions, and private funding of R&D in universities and other research institutions.

Keeping abreast of new technologies and developments relevant to drug discovery and biotechnology puts tough demands on life science organizations’ researchers and lawyers. Keeping current with technical advances presents challenge enough. Understanding the nuances and legal implications of the intellectual property that surrounds the discoveries escalates the difficulties. Even internally generated IP must be analyzed for patentability. “As we come out with new products we hope to see what type of IP is out there already so that we don’t infringe,” explains Alan Hammond, Invitrogen’s chief intellectual property counsel.

Seeking IP from outside sources puts further demands on corporate scientists and lawyers. Companies such as Amersham Biosciences, Invitrogen, and Eppendorf have created departments to monitor developments in key fields and license new technologies for further development and commercialization. “We have two systems,” says Hammer of Amersham Biosciences. “A business development team looks for new technology to bring in. We also screen other potential opportunities that come to us, often following conferences and similar events. The latter ideas are considered by R&D. Those that look interesting are reviewed at a meeting that also involves commercial and business development representatives. The IP team is involved in both aspects of the work.”

Invitrogen, meanwhile, has developed a licensing model for “following the money,” according to Sick. “We draw from the assumption that where money is being invested in R&D and technology, IP will follow,” he says. “We have a core group of people who send reports to me on scientific leaders around the world. We want to be first to discover new technology and negotiate for it. Then we have an established process to assess its commercial value based on our business plan.”

Companies can license a patented technology or invention on an exclusive or nonexclusive basis. In some cases, the inventor may benefit from granting an exclusive license to an organization interested in bringing a new technology to market. That applies particularly when the inventor seeks an unusually large investment. Securing sole rights to the product that will ultimately be brought to market reduces the investing firm’s financial risk.

How important is licensing? “Virtually no biotechnology company can go from concept to market without some licensing deal,” says Axford of Morrison and Foerster. “We always suggest that a thorough due diligence be performed to determine what sort of protection you obtain and what benefits and costs are involved in licensing the technology.”

ACQUISITIONS AND PARTNERSHIPS

As an alternative to licensing IP with strategic value, big pharmas frequently buy it via mergers or acquisitions. For example, Merck bought Rosetta Inpharmatics to obtain a leading edge capability in drug discovery and bioinformatics. Now, says Yoshida, “the external scientific affairs group at Merck identifies new technologies outside and inside the company.”

Novartis took a similar view. “Key IP was involved in our acquisition of Systems and Genetic Therapy, Inc., as platforms for going into new areas of cell therapy and gene therapy,” Morris says. “If you’re going into a new area and you need something to kick-start the whole project, acquisition is certainly a way to go about it.”

Smaller life science firms have started to work together to develop new products. Spotfire and Rosetta Biosoftware, itself a joint venture of Merck and Rosetta Inpharmatics, jointly announced a three-year agreement to integrate their flagship products. The alliance gives customers connectivity between Rosetta’s Resolver system and Spotfire’s DecisionSite, an analytic application for genomics. Rosetta Biosoftware also offers customized integration of the two products through its professional services business, tailored to meet specific gene expression analysis requirements of mutual customers. The integration of both products will allow researchers to explore gene expression data within a single data access and analysis environment. Customers shared by the two partners include Abbott, Aventis, GlaxoSmithKline, Immunex, Merck, and Monsanto.

Last year Amersham Biosciences and Aurora Biosciences combined forces to commercialize green fluorescent protein (GFP), a technology used to accelerate drug discovery and development. GFP is produced when the luminescent jellyfish Aequorea victoria is stimulated. Incorporated into cellular DNA, it is produced by the cell. Then, following laser excitation, it shines with a bright green fluorescent glow that researchers can use to track proteins in living cells. Already used in research on cancer and Alzheimer’s disease, GFP can dramatically advance drug discovery by enabling researchers to study real-time gene expression and protein migration and interactions. The commercial agreement will allow both Amersham and Aurora to broaden access to GFP for pharmaceutical companies, biotechnology companies, and academic research institutions.

ACADEMIC INTERESTS

A new source of life science IP has emerged in recent years: academic research. Several companies have found that funding academic scientists’ projects can bring commercially promising inventions and technologies on board faster than other approaches. “The pharmaceutical and biotechnology industries are beginning to set themselves up to integrate with the research universities in a proactive way,” says Michael Douglas, associate chancellor at the Center for Technology Management of Washington University, St. Louis. These initiatives stem in large part form the Bayh-Dole legislation of 1982 that gave universities ownership of IP that stemmed from federal funding. According to Douglas, that has resulted in about $3 trillion worth of sales by pharmas and other members of the life science industry.

The approach can benefit individual researchers who have an interest in helping to develop a new technology but don’t want to work for a commercial organization. Funding from a company can also allow scientists to pursue lines of research that might be out of the mainstream of their main research efforts. In return, the firm providing the funds can gain access to discoveries that would otherwise have eluded it.

Companies put a lot of effort into setting up collaborations with academic scientists. “Our company and others frequently engage in R&D collaborations with universities that involve us in providing money and equipment in return for research and the opportunity to license technology that emerges from it,” says Storella of Ciphergen. “We have a very large collaboration practice scientifically and legally,” says Wei Dhou, a patent attorney with Affymetrix. “We collaborate with every major academic institution, such as the Whitehead Institute, Harvard, and Stanford.”

Julian Burke, chief scientific officer of British firm Genetix, notes the win-win character of industrial-academic collaborations. The firm’s Gelpix product for cutting spots in two-dimensional gels is based on technology licensed from Germany’s Max Planck Institute. “It’s highly likely that if we hadn’t licensed the IP the institute wouldn’t have been able to incorporate it into a product,” Burke points out.

THE ART OF TECH TRANSFER

Several universities in the United States and elsewhere have developed specialized centers to help organize their intellectual property and to coordinate the transfer of technology from the university researcher to a company interested in licensing and developing it. The groups have the advantage of knowing how to deal with businesses and how to appraise the market value of different types of IP – abilities that even the most business oriented scientists lack. Most technology transfer centers have the goal of promoting the transfer of the university’s IP for society’s use and benefit while providing some income to the university.

While small compared with academic research grants, this income is hardly negligible. “We’re measured on the percentage of licensing revenues that flows into the university as a function of the research dollars expended,” explains Douglas of Washington University, which generates about 140 new invention disclosures each year. “Top tier universities tend to have a return on research of about 8 percent to 15 percent. Over all universities the return is about 2 percent.”

Research universities go about evaluating IP in much the same way as companies. “We have a process by which the faculty disclose their inventions to us replete with data books,” says Douglas. “We have lawyers on staff and as consultants. Then it’s an issue of getting the patent process started. After that it’s the job of the technology transfer office in effect to become a management consultant in terms of finding business partners and financial sources to develop the technology. It’s very much a mating ritual that has to be followed.”

The ritual can prove difficult. “There’s a perception that the value of academic intellectual property is worth more than companies are prepared to pay for it,” says Burke of Genetix.

Some analysts express concern that moves toward commercialization might prejudice universities’ academic mission. “The divide between the academicians and the more entrepreneurial types is an issue that all research universities now face,” Douglas says. “But our activities give the university the opportunity to recruit and retain top line faculty, many of whom are very entrepreneurial.”

INSIDE OR OUTSIDE ATTORNEYS?

While academic entrepreneurs generally have lawyers on tap, companies must find their own. Executives must make one key decision: Should they have an in-house legal team or rely on a specialist law firm? “When a company first starts out it probably does not need an in-house patent lawyer; there’s just not enough work to justify it,” says Haley of Fish & Neave. “But as it grows there is a huge advantage in having a lawyer in-house. The lawyer can work with business managers and scientists to act as a conduit for IP issues.”

Axford of Morrison and Foerster outlines the considerations that should go into the decision. “An in-house attorney has a much closer association with the scientists, which facilitates the patenting process,” she explains. “Also, outside attorneys are expensive. But in-house attorneys can lack objectivity. When I managed the IP assets of a biotech firm I sometimes found it hard to render unpopular opinions.” As a happy medium, she suggests that firms with fewer than 100 employees should hire a patent coordinator or patent agent with a scientific background to work with outside attorneys.

The larger the firm, the more it is likely to need its own internal legal team. “We act as a law firm with a single client: Affymetrix,” says Caufield. Even those teams need outside help in some specialist areas. “We go outside for litigation because it’s very resource intensive,” says Invitrogen’s Hammond. “The more specialized and resource intensive an issue or dispute it, the more likely outside counsel will become involved,” advises Haley. “In the United Kingdom,” says Adrian Spooner a solicitor in Hammonds’s London office, “litigation will be taken on by external counsel.”

QUALIFICATIONS FOR IP

Whether they work inside or outside a life science company, lawyers who provide IP need scientific as well as legal qualifications. “You can’t become a member of the patent office in the U.S. without a scientific or engineering background,” explains Fish & Neave’s Haley, who has a Ph.D. in chemistry. “A science background is less important for courtroom practice. But there are many more Ph.D.s in the firm now than when I joined it 25 years ago.” Europe has, if anything, tougher requirements for its patent specialists. “In any European country a patent attorney or patent agent needs a scientific background,” says Hammonds’s Schneider, who has a biochemical background. Life science firms set their own criteria. “I don’t think we would recruit someone who didn’t have a science degree to our intellectual property department,” says Hammer of Amersham Biosciences. “You need to understand the issues scientists face and to know the right questions to ask.”

Fostering R&D on new technologies and tools has become critical for life science companies, especially if they are to produce all that investors expect. Proponents of the current patent system argue that this cannot happen without the protection of intellectual property and patents. No smart investor, they say, would invest in a relatively risky opportunity with a low expected return. And no pharma would spend hundreds of millions of dollars to bring a drug to market if another company could simply copy the new drug and sell it at a cheaper price. With adequately protected IP, companies will continue to invest in the commercialization of new research tools.

That view is not universal. Opponents of the status quo in IP protection argue that the system stifles as much innovation as it permits. The argument over the extent of the patent system will plainly continue for several years to come. Meanwhile new research tools, technologies, and products, mostly protected by the current system, will enable scientific advances of the future.

Peter Gwynne is a freelance science writer based on Cape Cod, Massachusetts, U.S.A. Gary Heebner is a marketing consultant serving the scientific industry, based in Foristell, Missouri, U.S.A.