Patenting Research Tools and the Law
Rebecca Eisenberg, University of Michigan Law School
Over the past 15 years, a number of legal and commercial developments have converged to make intellectual property issues particularly salient in biomedical research.
A series of judicial and administrative decisions has expanded the categories of patentable subject matter in the life sciences. For many years it appeared that patents on living subject matter would violate the longstanding principle that one may not patent products or phenomena of nature.1 But in 1980 the US Supreme Court held in the case of Diamond v. Chakrabarty2 that a living, genetically altered organism may qualify for patent protection as a new manufacture or
composition of matter under Section 101 of the US Patent Code. Characterizing Chakrabarty's invention as "a new bacterium with markedly different characteristics from any found in nature" and "not nature's handiwork, but his own," the Court indicated that Congress intended the patent laws to cover ''anything under the sun that is made by man.'' With this broad directive from the Supreme Court, the US Patent and Trademark Office (PTO) expanded the categories of living subject matter that it considered eligible for patent protection to include plants3 and animals.4
During the same time period, the explosion of commercial interest in the field, and the concomitant emergence of commercial biotechnology companies, have amplified the importance of intellectual property in the biomedical sciences. Many biotechnology firms have found a market niche somewhere between the fundamental research that typifies the work of university and government laboratories and the end product development that occurs in more established commercial firms. To survive financially in this niche, biotechnology firms need intellectual property rights in discoveries that arise considerably upstream from commercial product markets. This creates pressure to patent discoveries that are closer to the work of research scientists than to ultimate consumer products.
Another contemporaneous development that has contributed to the prevalence of intellectual property in biomedical research is the passage of the Bayh-Dole Act and the Stevenson-Wydler Act in 1980, and a series of subsequent acts that refine those statutes and expand their reach.5 These statutes encourage research institutions to patent discoveries made in the course of government-sponsored research. For some institutions involved in health-related research, this represented a 180° shift in policy. A generation ago, the prevailing wisdom
was that the best way to assure full utilization of publicly-sponsored research results for the public good was to make them freely available to the public. Today, federal policy reflects the opposite assumption. The current belief is that if research results are made widely available to anyone who wants them, they will languish in government and university archives, unable to generate commercial interest in picking up where the government leaves off and using the results to develop commercial products. To make government-sponsored research discoveries attractive candidates for commercial development, institutions performing the research are encouraged to obtain patents and to offer licenses to the private sector. As a result, institutions that perform fundamental research have an incentive to patent the sorts of early stage discoveries that in an earlier era would have been dedicated to the public domain. A big part of the resulting increase in patenting activity among public sector research institutions has been in the life sciences.
Taken together, these factors have created a research environment in which early stage discoveries are increasingly likely to be patented, and access to patented discoveries is increasingly likely to be significant to the ongoing work of research laboratories.
PATENTS AS A STRATEGY FOR PROTECTION OF INTELLECTUAL PROPERTY
In order to assess the significance of these developments, it is necessary to understand something about patents and their relationship to other forms of intellectual property protection. The term intellectual property is used to refer to a wide range of rights associated with inventions, discoveries, writings, product designs, and other creative works. Some of these rights, such as patents, have more of the attributes of property than others, such as trade secrets. Some of these rights, such as patents, are protected under federal law, while others, such as trade secrets, are a matter of state law. A patent confers a right to exclude anyone else from using an invention, even an innocent infringer who independently develops the same invention without any knowledge of the patent holder's rights. Trade secrets, in contrast, receive more limited protection and may not be enforced against innocent infringers. Although trade secret rights are weaker than patent rights, the availability of legal protection for trade secrets under state law provides an alternative to protection that some inventors might choose in situations where patent protection is unavailable. One therefore cannot assume that withholding patent protection from research tools will improve their availability. Given commercial interest in the development and dissemination of research tools, in the absence of patent protection, firms may be more likely to resort to trade secrecy than to dedicate their research tools to the public domain, which could aggravate the problem rather than resolve it.
Trade secrecy is one way to keep inventions and discoveries out of the hands
of competitors to protect an investment in R&D. As long as no one else knows the Coca-Cola formula, the Coca-Cola Company does not have to worry about competition from outsiders who did not share the cost of developing it. But secrecy only works for inventions that can be exploited commercially without disclosure, such as manufacturing processes. Many inventions and discoveries are self-disclosing once they are put on the market in the form of a product, and thereafter may only be protected through a patent. Even when secrecy is feasible, it might not be desirable. From the perspective of an innovating firm, disclosure of underlying technology might help in the marketing of a new product, and from a broader social perspective, secrecy might impede further technological progress in the field.
For some inventions, patents provide an alternative strategy for protecting intellectual property rights that does not require (and indeed does not permit) secrecy. To get a patent, it is necessary to file an application that includes a full disclosure of the invention and describes how to make and use it. In many parts of the world, this disclosure will be made public 18 months after the filing date of the application. In the US, the disclosure is made public when the patent is issued. Once the patent application is on file, disclosure will not jeopardize the applicant's prospects for obtaining a patent.
A patent gives an inventor the rights to exclude others from making, using and selling the invention for a limited term, 20 years from the application filing date in most of the world. During the patent term the inventor may choose to make, use, and sell the patented invention herself (assuming this does not violate the patent rights of others or any applicable laws), or to license others to do so on an exclusive or non-exclusive basis, or even to suppress the use of the invention entirely. One thing an inventor who wants a patent cannot do is keep the invention secret.
BENEFITS AND COSTS OF PATENTS
In the industrial realm, patents are generally believed to promote technological progress in two ways: by providing an economic incentive to make new inventions and to develop them into commercial products and by promoting disclosure of new inventions to the public. The extent to which the patent system achieves these goals is essentially an empirical question with different answers in different fields. In the absence of a patent system, it is unlikely that invention and technical disclosure would come to a standstill. Firms that introduce new technologies into the market would surely find some R&D profitable even without patent rights. The anticipated advantages of being the first firm in the market with an innovation might be enough to motivate some firms to continue investing in R&D. But at least in some fields, the prospect of obtaining patent rights undoubtedly increases incentives to invest in R&D and to disclose research results somewhat.
Patent systems also entail social costs that need to be weighed against the benefits. The most obvious of these social costs is that patents create monopolies that increase the prices and reduce the supplies of the products they cover. This may be a tolerable cost for socially useful inventions that would not be made without the incentives of the patent system (presumably we would prefer to have these inventions at a high price than not to have them at all), but it is a very high cost for inventions that would be developed even in the absence of patent rights. Conferring exclusive rights on inventions that would be made without the incentive of patents reduces the use and increases the price of these inventions without furthering technological progress. Patent systems therefore use rules of law that attempt the difficult task of distinguishing between inventions that would occur even without patents and inventions that require the incentive of a patent. These legal rules call for a comparison between the invention and the "prior art," or preexisting knowledge in the field.
REQUIREMENTS FOR PATENT PROTECTION
The basic requirements for patent protection are novelty, utility, and non-obviousness. Novelty means that the invention did not exist before. Determining whether an invention is new requires searching through certain categories of prior art to determine the state of knowledge in the field at the time that the invention was made. Sources of prior art include prior patents, publications, and inventions that were previously in public use. If an invention was already known or used before the time that the inventor claims to have made it, the public gains nothing by conferring a patent. The patent will take something away from the public that it was previously free to use without in any way enriching the public storehouse of knowledge.
The prior art is also relevant to the standard of nonobviousness. This standard asks whether the invention constitutes a significant enough advance over what was known previously to justify patent protection. Under US law, the requirement is satisfied if, at the time the invention was made, it would not have been obvious to a person of ordinary skill in the field and who was knowledgeable about the prior art. This determination looks to the level of inventive skill of others working in the field, as well as the state of the prior art. In principle, the requirement might be justified as a means of distinguishing between trivial inventions that require no special incentive to call forth, and more elusive (and, perhaps, more costly) inventions that might not be developed without the enhanced assurance of profitability that patent protection offers. But how the standard will apply in any given case is often difficult to predict, and this uncertainty reduces the value of patents.
The utility requirement limits patent protection to inventions with practical applications, as opposed to basic knowledge. The meaning of this requirement has varied over the years from a minimal standard that the invention not be
positively harmful to people to a stricter requirement in recent years of safety and effectiveness that has sometimes approached what the FDA would require for approval of a new drug. Recent developments in the courts and in the PTO suggest that the utility requirement may be receding from its recent all-time high level as an obstacle to patent protection. The conceptual underpinnings of the utility requirement are not always clear, but in theory it can be justified as a means of distinguishing between basic research discoveries that are more likely to be effectively utilized if left in the public domain and more practical technological applications that may require a patent to ensure adequate incentives for commercial development. The Supreme Court has stated that discoveries whose only value is as an object of scientific inquiry do not satisfy the utility standard, suggesting that utility could be an important limitation on the use of the patent system to protect research tools.
EXPERIMENTAL USE EXEMPTION
In some cases, the courts have recognized what has come to be known as an experimental use exemption, or research exemption, from infringement liability. On its face, the patent statute does not appear to permit any unlicensed use of a patented invention, in research or otherwise, but language in some judicial opinions nonetheless suggests that use of a patented invention solely for research or experimentation is, in principle, exempt from infringement liability.
The experimental-use doctrine was first expounded in 1813 by Justice Story in dictum6 in the case of Whittemore v. Cutter.7 He observed "that it could never have been the intention of the legislature to punish a man who constructed [a patented] machine merely for philosophical experiments or for the purpose of ascertaining the sufficiency of the machine to produce its described effects."
It is difficult to discern the scope of this exception with any precision, inasmuch as experimental use becomes an issue only in patent infringement actions, and patent holders are unlikely to file a lawsuit against an academic researcher whose use of the invention is commercially insignificant. Judicial pronouncements on the scope of the experimental use exemption address situations in which a patent holder has found a defendant's activities sufficiently annoying to be worth the trouble of pursuing a lawsuit; this factor has undoubtedly skewed the distribution of cases in which the defense arises toward cases with high commercial stakes. Within this universe, the experimental use defense has been frequently raised, but almost never sustained. Nonetheless, courts have consistently
recognized the existence of an experimental use defense in theory, although the defense has almost never succeeded in practice.
Recent case law suggests that the experimental use defense may be available only for pure research with no commercial implications, if such a thing exists. In Roche Products v. Bolar Pharmaceutical Company,8 a 1984 decision of the US Court of Appeals for the Federal Circuit,9 the court rejected the arguments of a generic drug manufacturer that the experimental use defense should apply to its use of a patented drug to conduct clinical trials during the patent term. The purpose of the trials was to gather data necessary to obtain FDA approval to market a generic version of the drug as soon as the patent expired. The court characterized the defense as "truly narrow," noting that the defendant's use of the drug was "no dilettante affair such as Justice Story envisioned." The court held that the defense does not permit unlicensed experiments conducted with a view to the adoption of a patented invention for use in an experimenter's business, as opposed to experiments conducted for amusement, to satisfy idle curiosity, or for strictly philosophical inquiry. Although it is not entirely clear what sort of research the court would exclude from infringement liability as a mere "dilettante affair," the language of the decision offers little hope of an exemption for research scientists who use patented inventions with an aim to discover something of potential usefulness. It certainly suggests that the defense would be unavailable whenever the defendant's research is motivated by a commercial purpose. As a practical matter, this parsimonious approach could seriously limit the availability of the defense in fields of research with commercial significance, in which even academic researchers are often motivated, at least in part, by commercial interests.10
Congress has partially abrogated the decision of the Federal Circuit in Roche v. Bolar in the specific context of clinical trials of patented drugs by an amendment to the patent statute.11 As amended, the statute explicitly permits the use of patented inventions for the purpose of developing and submitting information under laws regulating the manufacture, use, or sale of drugs. But the amendment did not address the broader question of when the experimental use defense would be available outside of that very narrow setting.
Other countries have more broadly available experimental use defenses than the US, often explicitly included in the text of foreign patent statutes. But even these defenses typically distinguish between experimenting on a patented invention—that is, using it to study its underlying technology and invent around the patent, which is what the exemption covers—and experimenting with a patented invention to study something else, which is not covered by the exemption. In other words, even outside the US, the defense is not available for researchers who make use of patented research tools in their own work, as opposed to those who study the research tools themselves.
It is difficult to imagine how a broader experimental use defense could be formulated that would exempt the use of research tools from infringement liability without effectively eviscerating the value of patents on research tools. The problem is that researchers are ordinary consumers of patented research tools, and that if these consumers were exempt from infringement liability, patent holders would have nowhere else to turn to collect patent royalties. Another way of looking at the problem is that one firm's research tool may be another firm's end product. This is particularly likely in contemporary molecular biology, in which research is big business and there is money to be made by developing and marketing research tools for use by other firms. An excessively broad research exemption could eliminate incentives for private firms to develop and disseminate new research tools, which could on balance do more harm than good to the research enterprise.
RESEARCH TOOLS IN MOLECULAR BIOLOGY
Molecular biology provides a useful focal point for examining the effect of intellectual property on the dissemination of research tools. It is a dynamic and productive field of research that provides a wealth of new discoveries that are simultaneously inputs into further research and also candidates for commercial development. The obvious implications of discoveries in molecular biology for human health raise the stakes of striking the right balance between public access and private property, particularly when public attention is riveted upon the rising costs of health care. And it profoundly affects the interests of two different types of commercial firms—young biotechnology firms and large, integrated pharmaceutical firms—both of which are sensitive to intellectual property but for different reasons.
This dichotomy between biotechnology firms and pharmaceutical firms over-simplifies the wide range of firms with interests in molecular biology, but it is nonetheless a useful heuristic assumption to help sort through the interests of different sorts of firms. Young biotechnology firms typically need to raise funds to keep their research operations moving forward before they have products to sell to consumers. For these firms, an intellectual property portfolio might be critical at an early stage in their R&D to give them something to show investors
as evidence of their potential for earning high returns in the future. With this purpose in mind, they are likely to seek patents on discoveries that are several stages removed from a final product that is ready to be sold to consumers.
Established pharmaceutical firms are also very sensitive to intellectual property rights, but for different reasons and at a different stage in the R&D process. Pharmaceutical firms do not need to go to the capital markets to fund their research; they typically fund new research projects out of profits on existing products. For these firms, intellectual property is not a means of raising capital, but simply a means of ensuring an effective commercial monopoly for their products. A monopoly position in a new drug will help them recoup what might amount to hundreds of millions of dollars required for FDA-mandated clinical testing before they can bring that drug to market. For this purpose, they seek patent rights that cover the downstream products that they sell to consumers, not the upstream discoveries that they may use along the road to product development.
Since they have different reasons for requiring intellectual property rights, these different types of firms are likely to be affected differently by different legal rules. We need to keep the interests of both of these types of firms in mind, along with the interests of researchers and the institutions that fund research, as we think about how to manage intellectual property rights in research tools. Strategies that work for some players could be disastrous for others.
PATENTS ON RESEARCH TOOLS
"Research tools" is not a term of art in patent law. No legal consequences flow from designating a particular discovery as a research tool. Research tools are not categorically excluded from patent protection (except insofar as they lack patentable utility), nor is the use of patented inventions in research categorically exempted from infringement liability.
Nonetheless, there are reasons to be wary of patents on research tools. Although the ultimate social value of research tools is often difficult to measure in advance, it is likely to be greatest when they are widely available to all researchers who can use them. For years, we have sustained a flourishing biomedical research enterprise in which investigators have drawn heavily upon discoveries that their predecessors left in the public domain. Yet the nature of patents is that they restrict access to inventions to increase profits to patent holders. An important research project might call for access to many research tools, and the costs and administrative burden could mount quickly if it were necessary for researchers to obtain separate licenses for each of these tools.
The effects of patenting research tools will vary. For example, patents are unlikely to interfere substantially with access to such research tools as chemical reagents that are readily available on the market at reasonable prices from patent holders or licensees. Many of the tools of contemporary molecular biology
research are available through catalogs under conditions that approach an anonymous market. Some are patented, but the patents are unlikely to interfere with dissemination. Indeed, it might be cheaper and easier for researchers to obtain such a tool from the patent holder or from a licensed source than it is to infringe the patent by making it themselves. But not all research tools are of that character.
Some research tools can only be obtained by approaching the patent holder directly and negotiating for licenses; in this context, patents potentially pose a far greater threat to the work of later researchers. Negotiating for access to research tools might present particularly difficult problems for would-be licensees who do not want to disclose the directions of their research in its early stages by requesting licenses. Another risk is that the holders of patents on research tools will choose to license them on an exclusive basis rather than on a nonexclusive basis; this could choke off the R&D of other firms before it gets off the ground. Such a licensing strategy might make sense for a startup company that is short on current revenues, even if it does not maximize value in the long run from a broader social perspective.
Another risk is that patent holders will use a device employed by some biotechnology firms of offering licenses that impose "reach-through" royalties on sales of products that are developed in part through use of licensed research tools, even if the patented inventions are not themselves incorporated into the final products. So far, patent holders have had limited success with reach-through royalty licenses. Firms have been willing to accept a reach-through royalty obligation for licenses under the Cohen-Boyer patents on basic recombinant DNA techniques, perhaps because those patents include broad claim language that covers products developed through the use of the patented technology. But reach-through royalties have met greater market resistance for other patents, including the patents on the Harvard onco-mouse and the polymerase chain reaction (PCR).
Licenses with reach-through royalty provisions might appear to solve the problem of placing a value on a research tool before the outcome of the research is known. One difficulty in licensing research tools is that the value of the license cannot be known in advance, so it is difficult to figure out mutually agreeable license terms. A reach-through royalty might seem like a solution to this problem, in that it imposes an obligation to share the fruits of successful research without adding to the costs of unsuccessful research. But it takes little imagination to foresee the disincentives to product development that could arise from a proliferation of reach-through royalties. Each reach-through royalty obligation becomes a prospective tax on sales of a new product, and the more research tools are used in developing a product, the higher the tax burden.
A further complication arises in the case of inventions that have substantial current value as research tools but might also be incorporated into commercial products in the future. It might be necessary to offer exclusive rights in the
ultimate commercial products to innovating firms to give them adequate incentives to develop the products, but it might be impossible to preserve this option without limiting dissemination of the inventions for their present use as research tools.
For all of these reasons, exclusive rights risk inhibiting the optimal use of research tools and interfering with downstream incentives for product development. Much depends on whether the holders of exclusive rights can figure out how to disseminate research tools broadly without undermining their value as intellectual property.
These are difficult problems that defy facile solutions. One of the purposes of this workshop is to examine the solutions that different institutions have come up with and see how they have operated in practice. Which mechanisms have worked well, which have worked badly, and what can we learn from the experiences of others? We need to keep in mind that this issue implicates the interests of many different players who value intellectual property in different ways and for different purposes.