Archive for the ‘Research Licenses’ Category

Why IP Assignment Agreements Matter, Supreme Edition

Thursday, July 14th, 2011

The Supreme Court schooled Stanford University in legal writing in Trustees of Stanford University v. Roche Molecular Systems, ruling that sloppy drafting of an intellectual property assignment agreement required Stanford to share ownership of an important patent for HIV detection technology.

As summarized in an earlier post, the Federal Circuit Court of Appeals dismissed Stanford’s patent infringement lawsuit against Roche because a poorly drafted intellectual property assignment agreement signed by one of Stanford’s researchers in effect made Roche a co-owner of the patent and thus immune from a patent infringement lawsuit. The Stanford agreement said that the researcher “agree[d] to assign,” his rights in any inventions, i.e. at some time in the future, but that was trumped by a later assignment that the researcher signed with Roche’s predecessor, but which was phrased in the present tense (“do[es] hereby assign”), to take immediate effect.

Before the Supreme Court, Stanford’s argument focused not on the language of the assignment agreement, but on the Bayh-Dole Act, which regulates intellectual property ownership and commercial exploitation of inventions created as part of a federally funded project. Stanford argued that its HIV research project was subject to Bayh-Dole, and that the law vested ownership of the invention directly in Stanford, so that the researcher had no rights to assign to Roche.

The Supreme Court disagreed, ruling that patent law had traditionally vested initial ownership of inventions in inventors, regardless of whether they invented on their employers’ payroll. (For that reason, most employers make sure to have their researchers sign assignment agreements that transfer ownership of all inventions upon creation to the employer.) The Court admitted that the Bayh-Dole Act was not a model of clarity on the issue of initial ownership of inventions, but ruled that a statute would need to directly and unambiguously vest ownership in the research organization to change the “inventor owns” rule, but Bayh-Dole had not.

Takeaway: as we said back in January, 2010: “A lot of folks DIY basic contracts like employment agreements by cutting and pasting poorly drafted templates from the Internet. A lot of other folks sign non-disclosure and similar basic agreements without a glance at the actual contents. This case shows why neither is a good idea.” If you are a federally funded research organization subject to the Bayh-Dole Act, it would be wise to review your IP assignment agreements for compliance with the Stanford decision.

Licensing and the Pharma Patent Cliff

Friday, October 22nd, 2010


Photo courtesy Dennis Barnes Photography

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 2.0 Generic License.

Peering over the edge of a “patent cliff” that threatens to cut deeply into its profits, Big Pharma is considering modifying its current business model of in-house development of all-or-nothing blockbuster drugs towards a business model of in-licensing from biotech startups and university researchers.

The time and cost of developing new drugs from scratch is enormous– typically $2 billion per successful drug and 10 to 15 years from initial research to final regulatory approval.

But during the next five years, many top-selling blockbuster drugs will come off patent, and face severe price competition from generic versions, including: Pfizer’s Lipitor; Astra-Zeneca’s Seroquel; and Sanofi-Aventis’ and Bristol-Myers Squib’s Plavix. Between 2011 and 2014, four of Eli Lilly’s top five sellers will fall off the patent cliff: Zyprexa, Symbalta, Gemzar, and Evista. Estimates peg the total revenue loss to Big Pharma as high as $140 billion through 2016.

In response, analysts at Morgan Stanley are advocating a move away from the go-for-broke nature of the blockbuster business model, towards a Pharma 2.0 model of in-licensing from biotechs and academic researchers, who do all early-stage research and testing, and assume most of the risk. According to their analysis, the return on investment of in-licensed drugs is three times higher than drugs developed in-house.

And it appears that some of Big Pharma is listening. According to thepharmaletter.com, in 2009 the top 10 pharmaceutical companies entered into 12% more health-care focused licensing deals than the year before. Andrew Baum of Morgan Stanley estimates that large European pharmas will cut research spending by 40% in the next two years, and focus on licensing and acquisitions of promising drugs in development.

But for other pharmaceutical companies, the “Not Invented Here” syndrome still rules the day. Eli Lilly, which faces probably the most severe patent cliff among the major pharmas (above), has announced that it will meet the challenge mainly through cost cuts, job cuts, and modifications of existing product lines, rather than major new licensing or acquisition initiatives. It argues that slashing in-house research and development to boost return on investment is a short-term fix that would undermine Lilly’s long-term mission.

As we have argued in other contexts, while licensing may not always be appropriate as a complete replacement for in-house research and development, it is almost always appropriate as a complementary business model. When you are looking over the side of a cliff, Not Invented Here goeth before the fall.

Has Pay for Delay Seen Its Day?

Thursday, August 12th, 2010


Photo by Sage Ross, CC by-sa

What do you call it when a patent holder pays royalties to a possible infringer, and not the other way around?

In the pharmaceutical industry, it is called “reverse payment” or “pay for delay,” a practice in which the inventor of a patented drug pays the developer of a generic substitute not to produce until the patent is nearly expired.

The practice has withstood multiple court challenges, but is coming under increasing fire from the executive and legislative branches of the federal government as anti-competitive.

And a three judge panel of the influential federal Second Circuit Court of Appeals, which recently upheld a reverse payment arrangement, has even taken the unusual step of inviting the challengers to appeal their loss to the entire 10 judge circuit court panel.

The origins of pay for delay are in the Drug Price Competition and Patent Term Restoration Act of 1984, popularly known as the Hatch-Waxman Act. Hatch-Waxman provides that when a developer of a patented drug applies to the Food and Drug Administration for permission to market it, the maker of a generic version of the drug may file a certification that the generic does not infringe the new drug’s patents, or that the new drug’s patents are invalid. The certification itself is deemed an infringement of the new drug’s patents, and sets the stage for the new drug’s inventor to sue the makers of the generic version for patent infringement.

The original logic of Hatch-Waxman was to encourage development of generics without undue cost to patented drugs by resolving infringement issues at an early stage, before either party had invested huge amounts of money in production and marketing. But it did not work out that way. Many innovators chose instead to pay the generics a “reverse payment” not to produce, usually until shortly before the new drug’s patents expire. Often payment to the generic is in the form of a percentage of sales on the patented drug, in effect, a “reverse royalty.”

Reverse payments have been widely criticized as an unreasonable restraint of trade in violation of Section 1 of the Sherman Antitrust Act.

The Federal Trade Commission estimates that pay for delay settlements cost consumers $3.5 billion per year because of the unavailability of cheaper generic drugs.

But pharmaceutical manufacturers reply that the agreements are reasonable commercial agreements to avoid the expense and uncertainty of litigation, especially where the prospective generic manufacturer has not risked significant market entry expenses or infringement damages, and has little to lose in filing a challenge.

And courts for the most part have agreed. The Eleventh Circuit and the Federal Circuit have upheld the practice, while the Sixth Circuit has held it unlawful.

Two of the biggest class-action antitrust challenges to pay for delay were lengthy class action lawsuits decided by the Second Circuit Court of Appeals.

In 2005, the Second Circuit upheld the practice in In Re Tamoxifen Citrate Antitrust Litigation, in which it ruled that reverse payment agreements do not violate antitrust laws, “[u]nless and until the patent is shown to have been procured by fraud, or a suit for its enforcement is shown to be objectively baseless,” or the settlement agreement extends the patent beyond its original scope.

In Re Ciprofloxacin Hydrochloride Antitrust Litigation challenged a settlement of a 1991 patent infringement lawsuit in which Bayer Corporation paid Barr Laboratories reverse payment royalties estimated at nearly $400 million not to manufacture a generic version of Bayer’s patented drug Cipro. A three-judge panel of the court ruled in April that in light of the circuit’s earlier ruling in the Tamoxifen case, it was compelled to dismiss the plaintiffs’ case, because they had not properly alleged that Bayer’s patent was procured by fraud, nor that the underlying patent lawsuit was objectively baseless.

But the appellate panel had significant reservations about the practice of reverse payments as a whole, and invited the plaintiffs to challenge the decision before an en banc hearing of the circuit’s 10 active judges. The plaintiffs accepted the panel’s invitation, and filed a petition for an en banc hearing, which was joined by briefs submitted by the Federal Trade Commission and the Department of Justice criticizing reverse payment settlements. A ruling on the petition is expected shortly.

Sentiment is also mounting against pay for delay in the legislative branch. Senator Orrin Hatch, who lent his name to the Hatch-Waxman Act, has criticized the practice as increasingly anti-competitive. A bill pending in the Senate would greatly curtail pay for delay by presuming that such agreements are anti-competitive, while permitting the parties to rebut that presumption in court. The bill is similar to a measure that has already passed the House of Representatives.

Pay for delay may have seen its day.

Update, 9/17/10: But maybe just not yet. The Second Circuit declined by 9-1 to rehear the Cipro case en banc, which means that pay for delay has withstood yet another legal challenge.

IP & Licensing Trends in Japan

Monday, August 9th, 2010

“It is often said that Japan wins at technology, but loses at business,” said Kimikazu Noumi, chairman of the Innovation Network Corp. of Japan (“INCJ”) at a recent press conference announcing INCJ’s initiative to monetize Japanese intellectual property assets in the life sciences.

This is a welcome reversal of a trend that we have previously noted, in which Japan has not effectively monetized its abundant intellectual property assets, through licensing and similar means.

INCJ is collecting billions of yen from Japanese public and private investors to launch the “Rising Sun Fund” to purchase dormant life sciences patents from universities and public research institutions, package them, and license them to domestic and foreign companies so they can develop new medicines and treatments without fear of infringement lawsuits. The initial areas of concentration will be embryonic stem cells; cancer; Alzheimer’s disease; and biomarkers.

According to the Japanese newspaper Asahi Shimbun, a main purchase target of the fund will be universities, because they use only an estimated 20% of their patents.

A Japanese version of the story from the same newspaper notes that the impetus for the fund was the 2007 arrival in Japan of the American bioventure fund, Intellectual Ventures, and its subsequent purchase of Japanese university research patents for relatively low license fees. The fund founders feared that the technologies would be developed overseas, and that Japan would not share in the fruits of medical innovations developed from patents developed at its own taxpayer-supported universities.

INCJ is expected to invest up to 1 billion yen (approximately $11.7 million), and several private companies, such as pharmaceutical heavyweight Takeda Pharmaceutical, are expected to invest millions of yen more.

On the other side of the coin, Japanese book publishers failure to license e-books has created a phenomenon known in Japan as 自炊 (jisui), or “cooking for oneself,” in which readers purchase hardcopy versions of books, slice out the pages with razor knives, and scan them into PDF form to read on their iPads. Japanese are avid book readers and big fans of compact technology, yet publishers have made only about 50,000 book titles available in e-book form, with few current best-sellers, compared to about 630,000 English language titles available for the Amazon Kindle.


How to Cook Your Own E-Books, Japanese Style

In fact, consumer demand is so great that new businesses have arisen to fill it– companies that will save readers the hassle of slicing and scanning by performing the service for about 200 yen per volume (approximately $2.38). The reader mails in the hard copy, the company e-mails back the digitized book. Between the service fee and the postage, the reader is probably paying a $4 or $5 premium (or 15 to 20 minutes of his time), over the hard copy price, to have his e-book.

It appears that the delay in making more e-book titles available through official channels is due to publishers’ fears that e-books will be sold at discounted prices relative to paper versions (as in the United States), thereby shrinking profits. But it appears that at least some Japanese readers want e-books so badly, they are willing to pay a premium over the hard copy price. It is a shame that publishers have not adapted their business model, and are leaving money on the table.

Update, 8/24/10: for a good survey of the jisui trend, see this article in the Mainichi Daily News (includes link to original Japanese article). It appears that competition in the jisui service bureau industry has pushed the price down to near 100 yen per volume.

Speaking of the iPad, the Washington Post recently ran an interesting article on how the iPad has become a hit with Japanese senior citizens who were not previously computer adept, because of its sleek design and intuitive, user friendly interface. The iPhone is also a smash hit in Japan– when I was in Osaka in late June, there were literally lines around the block of people waiting to purchase the iPhone 4. Many thought that Japanese would never become enthusiastic about a non-Japanese made electronic device, much less a smartphone, a product for which Japan has long had its own specialized, highly competitive market.

Why has Apple succeeded where so many others have failed? As noted in the link above, Japanese smartphones tend to be feature-centric, but somewhat clunky to navigate, while the Apple devices have been designed from the ground up to provide an elegant, seamless user interface among hardware, software, and abundant content. The usually compact size and sleek design of Apple devices also appeal to Japanese tastes.

Who Owns Life, Part 2

Wednesday, March 31st, 2010


A federal judge has invalidated several of Myriad Genetic’s patents on two genes linked to breast and ovarian cancer, in a wide-ranging decision that undercuts the legal basis of potentially all genetic patents.

Approximately 20% of all human genes are patented.

In a 152 page decision delivered Monday, Federal District Court Judge Robert Sweet of the Southern District of New York invalidated portions of seven of Myriad’s patents on the genes BRCA1 and BRCA2 on the grounds that the genes are “products of nature,” and therefore not patentable subject matter under 35 USC Section 101.

Myriad had argued that it had created isolated, purified versions of the genes not found in the human body, so they qualified as “manufactures” or “compositions of matter” under Section 101, and were not products of nature.

Judge Sweet disagreed, ruling that, “purification of a product of nature, without more, cannot transform it into patentable subject matter. Rather, the purified product must possess ‘markedly different characteristics’ in order to satisfy the requirements of Section 101.” And the purified forms of the genes were not markedly different from the native forms, ruled the judge, if properly viewed from the perspective of the genes’ information conveying functions, rather than from mere chemical or structural differences– the purified forms are designed to have the same nucleotide sequences as the native genes in order to convey the same genetic information.

However, almost all prior applications for genetic patents claim to meet the Section 101 threshold precisely by identifying a purified form of a human gene. If this ruling survives on appeal, opponents of genetic patents are expected to use it as the basis to challenge thousands of other genetic patents.

The suit was brought by the American Civil Liberties Union on behalf of breast cancer patients and medical researchers, who claimed that Myriad’s patents made detection tests for the genes too expensive (more than $3,000 per test in the United Sates, versus $1,000 in Canada where the tests are not patent-protected), and inhibited further research into new cancer treatments and therapies.

Myriad issued a statement claiming that the decision will not have a great impact on its business, because it struck down portions of only seven of Myriad’s 23 patents on the two genes.

Furthermore, proponents of genetic patents say that Judge Sweet’s opinion badly misinterpreted both the nature of the patented genes, as well as prior case law, and will certainly be overturned on appeal by the patent specialist Court of Appeals for the Federal Circuit.

Judge Sweet’s decision could also be impacted by the Supreme Court’s imminent ruling in In Re Bilksi, which is widely anticipated to recalibrate the definition of “patentable subject matter” for the information age.

The Licensing Law Blog will soon post a preview of the issues at stake in Bilski.

Who Owns Life?

Friday, March 19th, 2010

Those who are not patent attorneys may be surprised to learn that it is possible to patent the human genetic code.

In fact, approximately 20% of all human genes are patented.

The US Patent and Trademark Office (PTO) has granted patents on genes and their DNA building blocks since the early 1980s, but this practice has recently reentered public awareness due to a lawsuit (Association for Molecular Pathology v. US Patent & Trademark Office) by a breast cancer survivor against Myriad Genetics, a company that has obtained patents on two genes closely associated with increased risk for breast and ovarian cancer, BRCA1 and BRCA2. These patents make Myriad the sole provider of tests to detect those genes, at a cost of over $3,000 per test.

Patents give their owners exclusive rights to use, manufacture, or sell the patented invention for 20 years from filing of the application. In order to qualify for a patent, an invention must be new, useful, and non-obvious to an expert in the field. However, patents cannot be granted on laws of nature or theoretical phenomena, for example the Theory of Relativity. Prior to the 1980s, the PTO considered that life forms were equivalent to the laws of nature, and therefore not patentable subject matter.

However, the Supreme Court ruled in Diamond vs. Chakrabarty (1980) that a scientist could obtain a patent on a lab-created bacterium that could consume oil slicks, on the grounds that the organism did not occur in nature, and therefore was a “manufacture” or “composition of matter” under 35 USC Section 101, and not equivalent to a law of nature. (more…)

Research Licensing Corner: License Agreement Trumps Patent Law

Monday, January 25th, 2010

If patent law says that a joint owner of a patent does not have to pay royalties to its co-owners, but a license agreement says it does, who wins?

The license agreement, according to the federal Seventh Circuit Court of Appeals. (Original decision available here by entering case number 08-1351.) It recently affirmed a trial court’s order for Xenon Pharmaceuticals to pay $300,000 in royalties to the Wisconsin Alumni Research Foundation (“WARF”).

Xenon and WARF had jointly filed for a patent on a cholesterol-lowering enzyme called Stearoyl CoA Desaturase (“SCD”). WARF made Xenon an exclusive licensee of WARF’s patent rights, and in exchange, Xenon promised to commercially develop SCD and pay WARF a percentage of any product sales, royalties, or sublicenses under the WARF license.

Xenon then entered a sublicense with Novartis, but tried to get clever on WARF by saying that under the rule of concurrent ownership in Section 262 of Title 35 of the US Code, it did not have to pay any royalties to WARF, because Section 262 said, “each of the joint owners of a patent may make, use, offer to sell, or sell the patented invention… without the consent of and without accounting to the other owners.”

WARF then sued Xenon, and replied that Section 262 was prefaced by the phrase, “In the absence of any agreement to the contrary…” which the license agreement obviously was.

The trial and appellate courts both agreed that Xenon’s argument was too clever by half, and ordered Xenon to pay WARF $300,000 in royalties on Xenon’s revenues from the Novartis sublicense.

An interesting sidelight in this case: Xenon also claimed sole ownership of a set of therapeutic compounds arising from SCD, claiming that the WARF researcher who worked on the project had assigned his rights to Xenon via an invention assignment agreement. However, unlike Stanford’s invention assignment agreement, WARF’s assignment agreement had beaten Xenon to the punch, successfully transferring its researcher’s patent rights to WARF, so there was nothing left for him to assign to Xenon.

Takeaway: in a collaborative research arrangement that may result in a patentable invention, it is critical for the parties to draft a license or other agreement addressing development rights and revenue sharing, or else Section 262 will allow every party to strike its own separate deal.