While it will likely be a year or more before a final regulation takes effect, and there will almost certainly be amendments along the way, American companies – including those involved in the field of personalized medicine, where personal data is paramount by definition – should start paying attention now, since they may have to change the way that they do business in Europe.

We will provide a more detailed analysis of the Draft Regulation at a later date. In the meantime, here are some of the key issues we are examining:

• It is significant that the Commission is acting by Regulation rather than Directive (as was the case with the current privacy law, enacted by Directive in 1995). A regulation is top-down, imposed uniformly throughout the EU, whereas a directive is adopted country-by-country, which gives individual nations the chance to make adjustments.
• The EU is taking a very aggressive approach to jurisdiction, or its authority to regulate—and impose penalties on—U.S. and other foreign companies that do business in Europe. The Draft Regulation would cover all data processing activities (very broadly defined) by non-EU companies that involve offering goods or services to EU data subjects or monitoring their behavior.
• Data subjects (also broadly defined) will have significantly more rights than under current EU law. For example, the company will have the burden of proving that every subject has given consent for the processing of their data for specified purposes. Consent is defined as “any freely given specific, informed and explicit [emphasis added] indication of will,” and can be withdrawn at any time. The subject will also have a controversial “right to be forgotten and to erasure.” This means that when the subject withdraws consent or “the data are no longer necessary” for the purposes for which they were collected, the company must render the data inaccessible, including on the Internet.
• Along with data pertaining to race or ethnic origin, political opinions, religion or beliefs and trade-union membership, the Draft Regulation identifies “genetic data” as category of personal data designated for special protection. (The Draft Regulation defines “genetic data” broadly to include “all data, of whatever type, concerning the characteristics of an individual that are inherited or acquired during early prenatal development,” thus presumptively sweeping in all genetic information as well as family medical histories and other related health information.) Special protections include impact assessment and prior authorization of data processing operations, and activities lacking sufficient identification or mitigation of risks to individuals may be prohibited.

These are just a few of the more important features of the 96-page, 91-Article Regulation.

Elsewhere, the Draft Regulation would create other new rights and responsibilities and reaffirm and/or strengthen many provisions of existing law, including the current restrictions on transferring data outside of the EU. Ironically, the Draft Regulation notes that the “practical challenges to enforcing data protection legislation” across boundaries and the “risk of different levels of protection…creat[ing] restrictions on cross-border flows of personal data” between jurisdictions. While the Draft Regulation may ease some of these concerns within the EU, global companies seeking to move personal data in and out of the EU face a different calculus.

The draft must now be reviewed by several Directorates of the EU Commission before being submitted for review and approval by the Parliament and Council. But while full implementation will take some time—more than a year in most estimates—the proposed changes are so dramatic and far-reaching that U.S. companies doing business in Europe will require at least that much lead time to plan their compliance.

First-to-file (§ 3): The most significant change is from a “first-to-invent” system to a “first-to-file” system. Until now, it has been possible for
inventor A to challenge the application of inventor B, who filed an earlier application for the same invention, based on evidence that inventor A had actually invented first.

Under current law, such disputes are resolved in Patent Office proceedings called interferences, which are decided under complex rules that take into account who first conceived of the invention, who first reduced it to practice, and whether the competing parties were continuously diligent in their respective efforts to reduce to practice. The interference proceeding will be eliminated by the AIA legislation, and the entity that presently conducts those proceedings, the Board of Patent Appeals and Interferences, will be renamed the Patent Trial and Appeal Board (§ 7). Assuming all other requirements are met, the first inventor to file an application on the invention will be granted the patent. This provision “harmonizes” the United States patent system with those in other countries and will take effect 18 months from the enactment date.

“Prior commercial use” as a defense to infringement (§ 5): An accused infringer will have a valid defense if they can prove their own good faith commercial use of the infringing device or method at least one year before the earlier of either (a) the effective filing date of the patent or (b) the date the subject matter of the patent was publicly disclosed by the inventor. This section is effective on the date of enactment and applies to any patent issued on or after that date.

False patent marking actions (§ 16): Only the United States or “a person who has suffered a competitive injury as a result” of false marking (e.g., marking a product with an expired patent) may bring a suit on that basis. So-called qui tam actions (also known as whistleblower suits) based on false marking will be eliminated. Only the United States may recover statutory damages, and a person suffering competitive injury may recover “damages adequate to compensate for the injury.” This provision is effective for cases pending on or commenced on or after the date of enactment.

Study on genetic testing for second opinions (§ 27): As Dan wrote in June, the Director of the United States Patent & Trademark Office will be required to conduct a study on “effective ways to provide independent, confirming genetic diagnostic test activity where gene patents and exclusive licensing for primary genetic diagnostic tests exist.” This provision is effective immediately on enactment, and a report and recommendations to the House of Representatives and the Senate are due nine months from the bill’s date of enactment. As Myriad, Prometheus and other litigation with implications for personalized medicine patents continue to wend their way through the legal system, the study presents the government – and particularly the Patent Office – with a timely opportunity to once again weigh in on the merits of gene patents, in particular their effect on diagnostic testing and medical care.

Some Additional provisions: For those interested in digging deeper into the AIA, here a few other changes the new legislation will bring about:

• Numerous adjustments to post-grant review and reexamination, intended to encourage these processes and thereby decrease patent litigation (§ 6);
• Adjustment to rules regarding third-party submissions before issuance (§ 8);
• Fee-setting authority for the USPTO and changes to fees (§§ 10-11), including the creation of a “micro entity” category of inventor (entitled to pay 25% of certain fees) as a subset of the small entity (entitled to pay 50% of certain fees);
• Prohibition on patents claiming tax “reducing, avoiding, or deferring” strategies (§ 14) and on patents on human organisms (§ 33); and
• Prohibition on joinder of defendants solely on the basis that each defendant is accused of infringing the same patent(s), which is intended to restrict the litigation activities of so-called non-practicing entities (or, as they are less politely known, “patent trolls”) (§ 19).

As a practical matter, many of the changes described above – including the switch to first-to-file – will take some time to be implemented by the Patent Office (see timeline below, which comes from the PTO’s website) and should not be expected to dramatically alter the number or nature of patent issuances or challenges in the short-term. As for the hotly contested (see here, here and here for a sampling of views) economic impact of the AIA, including its effect on small inventors, if that debate is ever settled (unlikely given the myriad confounding factors) it will be years in the future.

The Plaintiffs’ Petition. Two things are interesting about the plaintiffs’ petition from a procedural standpoint. First, the ACLU lawyers requested rehearing by the three-judge panel that decided the case earlier this summer, not en banc rehearing by all members of the court. (But a majority of the judges of the full court could still decide to rehear the case en banc; they could do so if they found that the case “involves a question of exceptional importance.”) Second, the plaintiffs have asked for rehearing on only two of the issues they lost: that isolated genes are proper subject matter for product patents, and that only one of the named plaintiffs—Dr. Harry Ostrer, formerly of NYU—has standing to bring the case. The plaintiffs did not challenge that portion of the panel’s decision that upheld—unanimously—Myriad’s patents on a method of screening potential cancer therapeutics.

On the product patent issue, the plaintiffs contend that the panel failed to give proper consideration to “whether the DNA fragments claimed in these patents are products of nature.” In support of this conclusion, they argue two points: First, they emphasize that the 2-1 majority’s focus on the chemical structure of isolated genes was misplaced, because the patent claims at issue talk about function. While isolated DNA might be literally different from naturally occurring DNA at a structural level, they argue, it is functionally identical, and thus properly characterized as products of nature. Their second point is that “DNA fragments identical to those claimed in the patents appear in the body.” Specifically, “nature breaks the covalent bonds that hold together the full chromosome” during meiotic recombination, cell replication, and double-stand breakage. Hence, Judge Lourie’s reliance on “cleavage” to distinguish isolated DNA fragments from products of nature was misplaced.

Standing and Myriad’s Petition. With respect to standing, the plaintiffs argue that at least two other named plaintiffs—the American College of Medical Genetics, of which Dr. Ostrer is a member, and Yale geneticist Ellen Matloff—are engaged in ongoing controversies with Myriad and thus have standing.

Adding these plaintiffs could prove critical, since the sole argument raised in Myriad’s petition is that Dr. Ostrer does not have standing. The original Federal Circuit opinion found that he had standing because of a controversy related to his work at NYU. As we reported, however, at the time that opinion was issued Ostrer was in the process of moving to Albert Einstein College of Medicine. Myriad now points out that the move is complete and argues, that since Ostrer’s controversy with Myriad was based entirely on his employment at NYU, the controversy is now moot. Since the standing requirement is ongoing, if the court agreed that Ostrer no longer had standing, and if it refused to find that the ACMG or Matloff or any other plaintiff had standing, then it would have to dismiss the case. (By the way, Myriad is trying to have it both ways: it asks the court to dismiss the case for lack of standing but not to withdraw its previous opinion as legal precedent.)

Tactically, the plaintiff’s petition is a little hard to understand. It makes sense to ask the court to revisit the product and method patents decisions—especially the product issue, since it was 2-1, with a strong dissent—but why not ask the whole Federal Circuit, instead of just the original panel? Perhaps their decision was to target Judge Moore, who agreed that isolated DNA is patentable, but took 31 additional pages to say why. The thinking may be that, since she didn’t sign on to Judge Lourie’s reasoning, she can be persuaded to change her mind entirely. It was also essential to raise the standing issue, since Ostrer, on whom the whole case currently depends, may be on thin ice. But again, why not raise this issue for the whole Federal Circuit?

Myriad’s approach makes more obvious sense. Having won most of the contested issues, why not stick with the original panel? Also, Myriad’s lawyers probably concluded that the substantive issue they lost—the patentability of a method of analyzing and comparing normal and mutant DNA sequences—was unwinnable. The standing issue was a closer call. If the panel rehears the case, Dr. Oster’s case might well be found to be moot. But Myriad would then risk having the generally favorable opinion withdrawn and the case simply dismissed. Why do anything to jeopardize what was, for the most part, a win?

What’s the next step? The Federal Circuit will rule, presumably fairly quickly, on the petitions for rehearing, and could also decide on its own to take the case en banc. “Cert” petitions seeking Supreme Court review would follow either a denial of rehearing or the Federal Circuit’s decision following rehearing.

For the most part, the Federal Circuit’s 2-1 decision returned the law to the state it was in before District Judge Sweet’s opinion turned things upside-down last March.  Although full of interesting rhetoric, the court’s three lengthy opinions (a total of 105 pages) are less remarkable for what they decide than for what they invite higher authorities—the Supreme Court and the Congress—to decide down the road.

First, the scorecard.  The court’s judgment—that is, the holding, or outcome—was joined by Judges Lourie and Moore.  A third member of the panel, Judge Bryson, dissented in part, meaning that he joined only a portion of the judgment (more on that below) and disagreed with another part.

The majority held as follows:

1. On the threshold procedural question of standing, the district court’s ruling was affirmed, with one plaintiff (Dr. Harry Ostrer) having sufficient standing to challenge Myriad’s patent claims.
2. Isolated genes, cDNAs and partial isolated gene sequences are patentable subject matter under § 101 of the Patent Act.  Consequently, the district court’s judgment invalidating all of Myriad’s product claims to BRCA genes and fragments was reversed in its entirety.
3. Myriad’s claims to methods of screening potential cancer therapeutics by analyzing growth rates of cells with altered BRCA genes in the presence or absence of the treatments were also held to be directed to patentable subject matter, so the district court’s judgment of invalidity was reversed here as well.
4. Myriad’s claims to methods of analyzing BRCA gene sequences and comparing those with cancer-predisposing mutations to normal or wild-type gene sequences were held not to be directed to patentable subject matter.  The district court’s decision was thus affirmed with respect to these claims.

Counting up the votes. Judge Lourie wrote the so-called “opinion of the court” that announces the judgment and gives the rationale.  Judge Moore wrote a concurring opinion, meaning that she joined all aspects of the judgment.  She also agreed with Judge Lourie’s reasoning with respect to the method claims and the patentability of isolated cDNA sequences.  However, she had a slightly different reason for upholding the patentability of DNA sequences, and decided to explain her thinking at some length (31 pages!).  Finally, Judge Bryson joined in the judgment with respect to the method claims and the patentability of longer sequences of cDNA.  However, he voted against the patentability of all isolated DNA sequences as well as very short cDNA sequences, and would thus have affirmed the district court on that specific point.  His somewhat more succinct opinion (19 pages) explains his thinking.  Since he was in the minority on this point, his opinion does not have the force of law.

So, for those keeping score at home, here is how the judges came down on each issue:

1. Standing: 3-0, since one plaintiff has standing to challenge Myriad’s patents, the case can proceed.
2. cDNA: 3-0, cDNA is patentable (although for smaller cDNA molecules, the vote was 2-1, with Bryson dissenting).
3. Method claims: 3-0, with therapeutic screening claims upheld and comparing or analyzing claims invalidated.
4. Isolated DNA: 2-1, isolated DNA is patentable.

The majority’s rationale. With the bookkeeping out of the way, let’s take a look at how the judges reasoned their way through Myriad.

The plaintiffs’ standing.  After opening with a genetics tutorial, the Lourie opinion addressed the very technical but nonetheless critical issue of standing.  As we discussed after the Myriad oral argument, standing is a constitutional question, and it boils down to whether the plaintiffs have a sufficiently direct and immediate interest in the outcome to be proper parties to file the case.  Had the court found no plaintiffs to satisfy the threshold standing requirement, it would have dismissed the case without ever reaching the patent issues.  The court found that there was standing, but it was very close.

Only one plaintiff—Dr. Harry Ostrer of (for the moment; more on that below) NYU Langone Medical Center—was held to have standing.  That was because he alleged that Myriad forced him to stop offering BRCA clinical testing more than ten years ago by threatening infringement litigation, and that he remained ready, willing, and able to resume testing if the patents were held invalid.  One plaintiff with standing was enough for the court to proceed to the merits.

It should be noted, however, that last Wednesday, just before the Federal Circuit released its opinion, counsel for Myriad submitted a letter to the court (pdf) alleging that Dr. Ostrer’s impending move from NYU to Albert Einstein College of Medicine deprives Dr. Ostrer, and thus the Myriad plaintiffs, of standing.  While the Federal Circuit apparently did not see enough in Myriad’s last-minute letter to alter its standing analysis, the letter points out, correctly, that the standing requirement is an ongoing one which must continue to be met at all points during the appellate process.  As Myriad heads through subsequent appeals (discussed below), the issue of the plaintiffs’ standing to maintain their challenge will continue to loom in the background.

Turning to the product claims (the so-called “gene patents”), Judge Lourie reviewed more than 100 years of cases dealing with all kinds of substances with natural precursors or analogs.  He identified—correctly, in our view—the two key authorities as the Supreme Court’s opinions in Chakrabarty (holding genetically engineered bacteria to be patentable subject matter) and Funk Brothers (holding unpatentable an inoculum that combined bacterial species not known to co-exist in nature).  He concluded that the test was whether the claimed substances were “markedly different—have a distinctive chemical identity and nature”—from the naturally-occurring version.

The patentability of DNA.  cDNA sequences presented the easiest question for the court.  Even Judge Bryson agreed that cDNA is generally patentable, since it is a human-made molecule and the body does not naturally contain DNA in exactly this form (with introns spliced out).  However, as discussed below, Judge Bryson would have ruled differently with respect to particularly short sequences (as few as 15 base pairs) of cDNA.

When it came to the product claims, the real controversy concerned isolated genes and sequences in DNA form.  The district court had focused on the similarity in function and information content between natural and isolated genes, downplaying the chemical and structural differences that patent lawyers and the USPTO had always relied on.  As Judge Sweet wrote last year (pdf):

DNA represents the physical embodiment of biological information, distinct in its essential characteristics from any other chemical found in nature. It is concluded that DNA’s existence in an ‘isolated’ form alters neither this fundamental quality as it exists in the body nor the information it encodes.

Sixteen months later, Judge Lourie came down on the other side, focusing on the “cleaving” of isolated DNA out of its chromosomal environment as conclusive evidence of its fundamentally different nature.  (Curiously, he claimed that “cleaving” DNA from its chemical environment is fundamentally different from “isolating” a substance from an impure environment, which has sometimes been held insufficient to support patentability.)

The arguments about whether isolated DNA is sufficiently distinct from its natural counterpart are well-known, and neither side has an absolutely compelling case.  It seems to come down to an economic value judgment, and the Lourie and Moore opinions both reflect this reality.  Both majority judges put great emphasis on the dangers of upsetting thirty years (and 2,654 isolated DNA patents, by Judge Lourie’s count) of what Judge Moore called “settled expectations and extensive property rights.”  Both counseled deference to Congress, while Judge Lourie was “particularly wary” about a lower court expanding on an exception to patentability (the product of nature doctrine) that comes out of Supreme Court case law, not the Patent Act itself.

The method claims.  The judgments from the court on both categories of method claims were unanimous, as noted above.  Recall from our previous articles that the state of the law (such as it is) on methods generally is reflected in the Supreme Court’s confused and confusing 2010 decision in Bilski v. Kappos.  That case focuses on whether a method patent claims abstract processes (unpatentable) or specific applications (patentable), and expresses particular concern about method patents that preempt all uses of an abstract process.  In addition, Bilski held that the Federal Circuit’s machine-or-transformation (MoT) test could not be used exclusively, but could be an “important clue” to patentability.

In Bilski, the Supreme Court declined to provide any guidance for the proper application of the MoT test in a biotechnology context.  However, earlier this summer the Supreme Court agreed to review the Federal Circuit’s decision in Prometheus v. Mayo, which has twice upheld the patentability of a method of administering a drug, determining the level of the drug in a patient’s bloodstream, and then adjusting the dosage accordingly to maximize therapeutic efficacy.

Myriad’s analysis and comparison claims failed the test completely, earning a solid “F” from the Federal Circuit.  Judge Lourie wrote that such claims lack any “necessarily transformative step” and, in the end, “recite nothing more than the abstract mental steps necessary to compare two different nucleotide sequences.”

Myriad’s claim on a method of screening potential cancer therapeutics, on the other hand, was “not so manifestly abstract as to claim only a scientific principle.”  It also passed the still-breathing MoT test, since it involves the “transformative” steps of growing host cells in the presence or absence of a cancer therapeutic and then determining and comparing their growth rates.”  This was viewed as fundamentally different from simply comparing two DNA sequences.

Returning to the unpatentable claims to the analysis and comparison of DNA sequences, it is striking how much Judge Lourie emphasized the semantics of patent claim-drafting.  With Prometheus undoubtedly on their minds, Myriad’s lawyers had argued that this method actually did involve transformation.  They pointed out, for example, that here, just as in Prometheus, there was a “determining” step—in this case, of “the sequence of BRCA genes by, e.g., isolating the genes from a blood sample and sequencing them.”  Judge Lourie noted, though, that this step, while described elsewhere in the patent, was not part of the claims, by which patentable subject matter must be exclusively judged.  In Prometheus, by contrast, the determining step was in the claims.

It is hard to read this as anything but an invitation to patent lawyers to bring methods as abstract as Myriad’s within the ambit of patentable subject matter simply by putting more (perfunctory?) technical detail in the claims themselves.  As we have written previously, if clever draftsmanship is all that is ultimately required to satisfy the MoT test in many instance, the courts will have created “a potentially enormous opening through which to push all manner of personalized medicine patents replete with diagnostic, measurement, correlation and other interpretive or mental steps.”

The isolated DNA dissent. Judge Bryson argued in the same terms as the majority about the isolated DNA clams, and then reached the opposite conclusion.  Taking on Judge Lourie’s cleaving argument, he wrote that “there is no magic to a chemical bond that requires us to recognize a new product when a chemical bond is altered or broken.”  Agreeing with the district court about the paramount importance of the information content of genes, he concluded that “what is claimed in the BRCA genes is the genetic coding material, and that material is the same, structurally and functionally, in both the native gene and the isolated form of the gene.”

Perhaps more significantly, Judge Bryson also reached the opposite conclusion with respect to the economic implications of invalidating Myriad’s patents.  The—to him—“breathtakingly broad” claims to cDNA and DNA sequences as short as 15 nucleotides led Judge Bryson to look beyond the possibility of overturning biotechnology’s “settled expectations” and to the future effect of “a thicket of patents.”  This patent thicket, at least to Judge Bryson, presents “a significant obstacle to the next generation of innovation in genetic medicine—multiplex tests and whole-genome sequencing.”  He made a further point that we can confirm on the basis of our own experience: that “the costs involved in determining the scope of all those patents [in the thicket] could be prohibitive.”

Judge Bryson also departed from his colleagues in declining to give any deference to the USPTO’s 30-year practice of allowing isolated gene patents, on the grounds that it had never done any serious analysis of the subject matter issue.  Judge Bryson’s argument was buttressed by the Department of Justice’s amicus brief last fall, which advocated a dramatic departure from the PTO’s prior gene patent practice, as well as by a citation to an article by one of us (John) detailing the PTO’s limited review of these issues.

What happens next in Myriad? Since both Myriad and the plaintiffs both won and lost, both parties are eligible to seek further review, and both probably will.  One possibility is to ask the Federal Circuit for en banc review by all of its active judges (currently ten) sitting together.  This is relatively rarely granted, but more often in the Federal Circuit than in other federal courts of appeals because of its judges’ penchant for split decisions and major disagreements about fundamental doctrine.  So it is a real possibility.

After review en banc, or sooner if that appeal is not granted, both parties could petition for certiorari (cert), or further review, by the Supreme Court.  The Court grants cert in fewer than 100 cases in most years, denying the vast majority of cert petitions.  However, the Court has taken more patent cases in recent years, and this is an important one, with obvious economic and scientific implications, so it is a promising candidate.

But—remember that the Court already has Prometheus on its docket, which could settle the methods questions present in Myriad.  Among the possibilities here (yes, that was a reference to Monty Python’s Spanish Inquisition skit) are: (1) the Court takes the whole Myriad case; (2) it takes only the product claims issues, assuming that the method issues will be settled—at least for future cases—by Prometheus; (3) it takes Myriad and consolidates it wholly or in part with Prometheus, which would likely delay both cases until the 2012 term; or (4) it denies cert in Myriad and lets the Federal Circuit’s ruling stand as is.  All we can know for sure is that Myriad, still, likely has quite a ways to go before a final resolution.

What does the Myriad decision mean for the real world? First and foremost, this opinion restores—at least for the time being—the gene product patent world to the state it was in before the district court’s bolt out of the blue last spring.  So one reaction is, move along, people, nothing to see here.  But we emphasize at least for the time being.

As we said, this case has miles to go before it sleeps.  And it was a 2-1 decision, so the anti-gene patent position is neither crazy nor hopeless.  Judge Lourie ended up making a very debatable call (on how different isolated genes are from their natural counterparts) on which reasonable minds can differ.  Judge Moore was sufficiently dissatisfied with Judge Lourie’s reasoning that she took 31 pages to explain her own, ultimately (in our view) adding very little.

So there remains a high probability that there will be more said about the patentability of (in particular) isolated DNA sequences, probably by the courts (either the Federal Circuit en banc) or the Supreme Court, and possibly by Congress (if they ever manage to fix their debt ceiling distractions).

That said, how much difference will the final product patent decision in this case really make?  Myriad’s own product patents will begin to expire in 2014.  By the time Myriad wends its way through all available appeals, the biotechnology industry and clinical geneticists may have, collectively, innovated their way around the patents held by companies like Myriad.

Recall Judge Bryson’s fears about the impact on whole-gene sequencing.  Are those fears justified?  Judge Lourie repeatedly stressed cleaving the claimed isolated gene out of its natural environment.  Whatever you think of that argument in the context of the isolation of single genes, do present and forthcoming whole-genome sequencing technologies require the same cleavage?  In other words, do/will those technologies infringe patents on isolated DNA sequences using the analysis presented in Myriad?  That question has yet to be fully and formally asked, and will almost assuredly not be addressed by the Myriad litigation.  Which means that, whatever the outcome in this case, patent litigators with Ph.D.s in genetics should remain gainfully employed for the foreseeable future.

We should also look beyond the threshold question of patentability under Section 101.  As we have written previously, the real action on gene product patents is occurring under other sections of the Patent Act that deal with novelty, non-obviousness, and the written description requirement.  These sections’ requirements have been repeatedly tightened, with an overall effect of “nibbling around the edges” of gene patents, as we have put it.  The Myriad court’s reference to all of these sections—none of which is in play here—underscores the point that passing the subject matter test barely gets you out of the batter’s box, let alone to first base.

We have also written (e.g., here) that the disposition of method claims, in Myriad but also in Prometheus and other cases, will ultimately prove more important to the personalized medicine industry.  This case—unanimously—invalidates some of the broadest diagnostic method claims.  But even that rejection comes across as relatively toothless, given that Judge Lourie offered a roadmap for the alert patent lawyer to reword such claims so that they might survive.  That’s good news for those who might profit from broad method claims, cause for concern for those who might be inhibited by them, and a clear reminder that plenty more work (and, likely, litigation) is yet to come.

Ultimately, as Myriad pushes into its third year, our advice remains the same as before: keep watching—not just Myriad, but Prometheus as well, which is running slightly ahead on a parallel track—and know that, while the debt ceiling may yet cave in around us, whether the pigs will ultimately rule the gene patent sky remains to be seen.

The patents at issue in Prometheus involve a method of administering a drug (specifically thiopurine drugs used to treat gastrointestinal and other autoimmune diseases), measuring the drug’s level in a patient’s body, and then adjusting the dosage of the drug. The Supreme Court will hear the case this fall and should (see below) issue a ruling by next summer, thus drawing to a close a legal journey that began more than three years ago in a California district court.

The Path of Prometheus. In March of 2008, a California district court invalidated a pair of patents (U.S. Patent No. 6,355,623 and No. 6,680,302) exclusively licensed to Prometheus Laboratories, holding that the claimed inventions were not patentable subject matter under Section 101 of the Patent Act. The district court’s ruling was overturned by the Federal Circuit on September 16, 2009. The Federal Circuit ruled that the claimed methods satisfied the machine-or-transformation (MoT) test used to decide whether particular methods qualify as patentable subject matter under Section 101.  The court held specifically that the administration and measurement steps worked a sufficient transformation of the body to satisfy the MoT test.

On the losing end of the Federal Circuit’s first decision, Mayo Medical Laboratories promptly applied to the Supreme Court for review (the technical term is a writ of certiorari). The Supreme Court took up the appropriateness of the MoT test for method patents in the summer of 2010 in Bilski v. Kappos. In Bilski, the Supreme Court issued a narrow opinion, holding that the MoT test was not the exclusive test for evaluating method patents but failing to issue any broader guidance, including for the biotechnology industry. Almost immediately thereafter, the Supreme Court granted certiorari in Prometheus, vacated (set aside) the Federal Circuit’s decision and ordered that the case be reconsidered by the Federal Circuit in light of Bilski (remand).

At the Supreme Court’s request, the Federal Circuit reconsidered Prometheus and, to nobody’s surprise, reached exactly the same result on December 17, 2010, upholding the ‘623 and ‘302 patents as valid under Section 101.

Prometheus, LabCorp and Personalized Medicine. The patents at issue in Prometheus are important in large part because they point to the very heart of the practice of personalized medicine. In many cases, patented diagnostic methods can play an essential role in delivering the appropriate treatment (in the appropriate dose or form) to a patient in the most efficient manner.

In each of its decisions, the Federal Circuit held that the patents at issue in Prometheus are valid because a method of treatment to “ameliorate the effects of an undesired condition” is “always transformative,” thus clearing the bar to patentability under Section 101.

As we commented following the Federal Circuit’s most recent ruling, the broad interpretation of the MoT test embodied by the Federal Circuit in Prometheus leaves:

a potentially enormous opening through which to push all manner of personalized medicine patents replete with diagnostic, measurement, correlation and other interpretive or mental steps, provided that the claim language can be framed as describing a “method of treatment.”

In its petition to the Supreme Court (pdf), Mayo struck a similar note, arguing that “the case concerns whether a patentee can monopolize basic, natural biological relationships.” It then presented this question to the Supreme Court for review:

Whether 35 U.S.C. § 101 is satisfied by a patent claim that covers observed correlations between blood test results and patient health, so that the claim effectively preempts all uses of the naturally occurring correlations, simply because well-known methods used to administer prescription drugs and test blood may involve “transformations” of body chemistry.

In making its case against the Prometheus patents, Mayo’s petition for certiorari places considerable emphasis on a 2006 Supreme Court dissent—Labcorp v.Metabolite (pdf)—in which the Court granted certiorari and then “dismissed as improvidently granted” a case also involving patents claiming biomedical associations (in LapCorp, a process for diagnosing vitamin deficiencies).

LabCorp was dismissed on procedural grounds (the patents in question were not specifically examined by the lower courts for patentability under Section 101) over the vigorous dissent of three justices. The dissent was written by Justice Breyer (the only one of the three dissenting justices still on the Court, following the recent retirements of Justices Souter and Stevens), who argued that a “technical procedural objection” should not have prevented the Supreme Court from addressing a more fundamental question: do the patents at issue “amount to an invalid effort to patent a ‘phenomenon of nature’?”

Not only would the dissenting justices in LabCorp have answered that question, they would have answered it in the affirmative, finding that the patents describe “an unpatentable ‘natural phenomenon’” that, at most, “simply described the natural law at issue in the abstract patent language of a ‘process.’” Patents like those in LabCorp, argued the dissent, could “raise the cost of healthcare while inhibiting its effective delivery.”

Mayo focused heavily on LabCorp to no avail during each of its trips through the Federal Circuit, as well as in its previous certiorari petition to the Supreme Court. Will the Supreme Court prove a more receptive audience this time around?

The Significance of the Court’s Cert Grant. At this point we know only one thing for sure:  at least four justices (the minimum needed to take a case) are sufficiently interested in Prometheus to want to give the case a closer look.

Why? One explanation could be that the Court—which still includes the LabCorp dissent’s author, Justice Breyer—is ready to make a statement about the appropriate boundaries of biomedical method patents. (A possible signal: Justice Breyer referenced LabCorp while describing both the benefits and costs of patents in his dissent (joined by Justice Ginsburg) in the recent Supreme Court case Stanford v. Roche (pdf).) The emphasis on preemption in the statement of the question presented to the Supreme Court for review in Prometheus also tracks the Court’s major concern in the Bilski opinion, which worried that the business method claims at issue in that case would foreclose all uses of a basic process.

For those, including Mayo, who find the Prometheus claims to be overly broad, the case thus presents an obvious opportunity for the Supreme Court to extend its anti-preemption logic to biomedical claims. But the Court could easily reach the opposite result and uphold in full the Prometheus patents.

Either way, speculating on possible outcomes and effects is grossly premature. The Court granted review in LabCorp but, despite the emphasis Mayo and others place on Breyer’s dissent, never reached a decision. And the Court’s last opportunity to clarify the state of biomedical patents, Bilski, is regarded almost universally as a lost opportunity, a case that ended up producing more confusion than clarity.

In the end, a substantive decision of any sort would likely represent a step forward for the Court’s jurisprudence in the area of biomedical patents. The need for improved clarity, perhaps more than any other issue, was at the crux of the LabCorp dissent, where Justice Breyer wrote that any decision on the merits, irrespective of its substance, would “help diminish legal uncertainty” and “permit those in the medical profession better to understand the nature of their legal obligations.”

With the Supreme Court’s grant of certiorari in Prometheus it is clear that the opportunity is there for the Supreme Court and, for at least four justices, the interest as well. But whether the Court will ultimately clarify—let alone change—the law regarding biomedical method patents remains anyone’s guess.

What’s Next for Biomedical Patents? Finally, keep in mind that, when it comes to biomedical patents, the action is not only at the Supreme Court. The Federal Circuit heard oral argument in the Myriad gene patent litigation in April but has yet to release its highly-anticipated opinion. Nor has the Federal Circuit issued a decision in Prometheus’s sister case, Classen v. Biogen IDEC, which received identical grant, vacate and remand treatment from the Supreme Court following Bilski. And, of course, the possibility of Congressional patent reform remains on the table.

As we look to the future of biomedical patents, it is clear that myriad opportunities exist to evaluate, as Judge Breyer urged in LabCorp, “whether the patent system, as currently administered and enforced, adequately reflects the careful balance that the federal patent laws embody.”

Which leaves us with only one simple question: who will take up that challenge, when will they do so, and what decision will they reach? Stay tuned.

However, we have argued in several articles (see, e.g., here, here and here) that the real action is more likely to involve all of those “other requirements” as courts explore other ways to limit the patentability of scientific and technology progress without altering the threshold test of patentability under section 101.

A recent Federal Circuit case (Billups-Rothenberg, Inc. v. Associated Regional and University Pathologists, Inc.) decided under the written description requirement of section 112 illustrates this point yet again.

Billups v. ARUP Background. The Billups case involves a disorder called Type I hereditary hemochromatosis, which is characterized by excessive absorption of iron. The critical gene in the absorption process is called HFE, or “High Fe.” In 1994, Billups filed the application that led to a patent on methods for testing for hemochromatosis (U.S. patent number 5,674,681; “’681”). The court’s opinion reproduces this claim as “representative”:

2. A method to identify an individual having or predisposed to having hemochromatosis, comprising the steps of:

a) providing from the individual a sample containing a gene encoding a nonclassical MHC class I heavy chain

and

b) detecting a mutation in said gene, which mutation results in the reduced ability of said heavy chain to associate with said β2 microglobulin, wherein the presence of said mutation identifies said individual as having or predisposed to having hemochromatosis.

Significantly, at the time of the 1994 filing Billups had not yet isolated the relevant gene or mutation—later discovered to be C282Y.

Then, in 1996, a competing research team filed a patent application that disclosed C282Y and another relevant mutation called S65C (resulting in patent number 6,025,130; “’130”). That patent was assigned to Bio-Rad Laboratories, Inc. (a co-defendant along with ARUP in this case), which in turn licensed the patent to ARUP (like Myriad Genetics, a University of Utah spinoff).

Both ARUP and Billups continued their work. ARUP developed its own hemochromatosis test that detected C282Y and S65C, and in 1999 Billups filed another patent application that resulted in patent number 6,355,425 (“’425”). The 425 patent is far more specific than the earlier ‘681 patent, disclosing the S65C mutation.

Claim 1 of the ‘425 patent reads:

A method of diagnosing an iron disorder or a genetic susceptibility to developing said disorder in a mammal, comprising determining the presence of a mutation in exon 2 of an HFE nucleic acid in a biological sample from said mammal, wherein said mutation is not a C→G substitution at nucleotide 187 of SEQ ID NO: 1 and wherein the presence of said mutation is indicative of said disorder or a genetic susceptibility to developing said disorder.

In 2009, Billups sued ARUP and Bio-Rad, claiming that the company’s “diagnostic assays or kits for detecting hemochromatosis” infringed both the ‘681 and ‘425 patents. A California federal district court found both of the Billups patents invalid and, last month, the Federal Circuit affirmed unanimously. (Judge Kimberly Moore, who is on the Myriad panel, was one of the three judges who signed the opinion in this case.)

More Nibbling Around the Ages of Patentability. According to the Federal Circuit, the problem with the ‘681 patent issued to Billups was a failure to satisfy the written description requirement of section 112. The applicant must describe the claimed invention at a sufficient level of detail to “enable any person skilled in the art to which it pertains” to make and to use the invention. (The standard is purely theoretical: that person couldn’t actually reproduce the invention, of course, because that would be infringement.) Providing an adequate written description satisfies the applicant’s part of the basic patent bargain—trading knowledge for exclusive rights—and also proves that applicant actually possesses the claimed invention.

In a series of cases, most importantly last year’s en banc decision in Ariad Pharms., Inc. v. Eli Lilly & Co., the Federal Circuit appears to have tightened the section 112 requirement for gene-related inventions. As the court put it in 1997 (in Regents of the Univ. of Cal. V. Eli Lilly & Co.), and reiterated last month in Billups:

[A]n adequate description of a DNA requires more than a mere statement that it is part of the invention and reference to a potential method for isolating it; what is required is a description of the DNA itself.

That is, the patent must disclose not only the function of the relevant DNA, but something about its structure as well. The ‘681 patent failed this test according to the Federal Circuit:

The ’681 patent claims a test for mutations, yet it is undisputed that the specification and originally filed claims of the ’681 patent disclose neither the hemochromatosis gene sequence nor any specific mutations within that gene.

Billups contended that its written description should be judged in light of “knowledge outside the patent, including the subsequent discovery of C282Y,” but the court disagreed:

Given the lack of knowledge of sequences for the hemochromatosis gene and its mutations in the field, the limited extent and content of the prior art, and the immaturity and unpredictability of the science when the ’681 patent was filed, Billups cannot satisfy the written description requirement merely through references to later-acquired knowledge.

After dispensing with the ‘681 patent, the Federal Circuit then invalidated Billups’ ‘425 patent (filed in 1999) under section 102 as “anticipated,” or fully disclosed, by ARUP’s ‘130 patent (filed in 1996). Billups argued that the ‘130 patent’s disclosure of the S65C mutation should not count because ARUP did not appreciate its significance. The court acknowledged that “the ’130 patent discounts the utility of the S65C mutation in diagnosing hemochromatosis,” but nonetheless “held that a ‘reference [to another invention, in this case the S65C mutation] is no less anticipatory if, after disclosing the invention, the reference then disparages it.’”

These holdings may be highly technical in patent law terms, but the underlying point seems straightforward: Yet again, the Federal Circuit has demonstrated skepticism about a gene-related patent, and a willingness to scrutinize it closely under all of the requirements of the Patent Act, not just section 101.

While the question of patentable subject matter under section 101 may be more glamorous, particularly in the context of Myriad’s gene patents, it continues to appear that the real work of limiting product and method claims on genes and their interpretation is being done elsewhere.

Murky Methods. Meanwhile, back within section 101, the difficulty in figuring out the standards for the patentabilty of methods and processes was on display in two oral arguments at the Federal Circuit during the first week of May. (CyberSource Corp. v. Retail Decisions Inc., No. 2009-1358, argued 5/2/11, and DealerTrack Inc. v. Huber, No. 2009-1566, argued 5/4/11). The cases involved computer-aided manipulation of credit information, not genes, but the arguments nonetheless underscored the problems the court faces in sorting out the method claims in Myriad.

As the GLR has reported, last summer’s Bilski Supreme Court decision shed little light on the patentability of a range of emerging technologies, particularly in the areas of software and biotechnology, including the so-called “diagnostic method” patents challenged in Myriad. The Bilski Court held that the Federal Circuit’s machine-or-transformation test should not be used exclusively, but said little else beyond emphasizing that abstract ideas were unpatentable.

Since Bilski, the Federal Circuit has upheld the patentable subject matter status of a “method for the halftoning of gray scale images” on computer screens (Research Corporation Technology, Inc. v. Microsoft Corporation) and reaffirmed its earlier opinion that a method for administering a drug was also patentable subject matter (Prometheus v. Mayo). Although both cases suggest that the patentable subject matter standard is not especially demanding, neither does much to clarify exactly what that standard is.

The CyberSource patent claims a three-step method for “for verifying the validity of a credit card transaction over the Internet,” as well as a “computer readable medium” programmed to carry out the method (a so-called Beauregard claim—named for the case in which such a claim was recognized, not the guy who fired on Fort Sumter). The DealerTrack patents claim a “computer aided method” of managing an automated credit application for car loans.

In both cases, neither the judges nor the lawyers seemed to have a firm sense of what standard should be applied. On the contrary, lawyers on both sides seemed to take the position that, wherever the method patent line currently is, the claims they were arguing about were either clearly short of it or well over it.

What Does It All Mean for Personalized Medicine? As Myriad illustrates, there are two kinds of gene patents that are of significance to the increasingly broad array of personalized medical research and practice: product patents on genes themselves and method patents on biomarker-based diagnostic testing and interpretation.

As we look ahead to Myriad’s resolution and beyond, it is the latter category of patents that is likely to be the more important to personalized medicine. As isolated gene patents begin to expire, or are circumvented by rapid technological advancements, the standard for the patentability of methods is unclear and seems to be getting even less clear with each new case.

Although the courts—especially the Federal Circuit—appear increasingly willing to use other patentability requirements to strike down broad claims to gene-related methods, thereby avoiding the fundamental question of which methods are patentable under section 101, this question will need to be clearly resolved at some point in order for personalized medicine to continue to thrive.

When NIH refused to act, a larger group filed a class action lawsuit (pdf) in Pennsylvania federal court against Genzyme and Mt. Sinai for damages allegedly caused by their inability to get prescribed dosages of Fabrazyme^®.   As we reported last month, the suit raises novel legal theories and faces an uncertain future. (Earlier this month Genzyme filed a motion to dismiss (pdf) the lawsuit.)

Additional Supply Delays Prompt Rehearing Request. The patients have now gone back to NIH, asking for a rehearing of their march-in petition in light of new evidence. Their lawyer, C. Allen Black (who is also co-counsel in the class action), points out that that the supply problems have gotten worse because of another contamination incident at Genzyme’s Allston, Massachusetts facility. As a result, Genzyme pushed back its anticipated resumption of “normal supply” of Fabrazyme^® from early 2011 to the second half of 2011.

However, Genzyme acknowledges that even that target date depends on:

the expected approval of our new manufacturing facility in Framingham, Massachusetts. Until this new facility is approved, Fabrazyme^® inventory remains low and supply will be vulnerable to disruption due to unforeseen manufacturing events such as this one.

The Genzyme announcement also declines to give specific information about regional differences in supply, advising patients to contact their company representatives.

As the Fabry patients’ new NIH march-in petition contends, all of this is hardly grounds for optimism about renewed supplies. In denying the original petition, the NIH seemed to be relying on the likelihood that Genzyme would resume normal production long before any other manufacturer would be able—or willing, given the cost of producing a biologic like Fabrazyme^®—to get up and running. As the NIH reasoned in denying the original petition (pdf):

A march-in proceeding resulting in the grant of patent use rights to a third party will not increase the supply of Fabrazyme^® in the short term because years of clinical studies and regulatory approval would be required before another manufacturer’s product could become available to meet patients’ needs in the United States….Finally, Genzyme has indicated that it expects the production of Fabrazyme^® to be back to full supply levels in the first half of 2011.

The NIH added, however:

Notwithstanding the foregoing, NIH will continue to carefully monitor the shortage of Fabrazyme^® and will re-evaluate this determination immediately upon receiving any information that suggests progress toward restoring the supply of Fabrazyme^® to meet patient demand is not proceeding as represented.

The NIH now has exactly that—“information suggesting progress toward restoring the supply of Fabrazyme^® to meet patient demand is not proceeding as represented”—and, if taken at its word, can be expected to give serious consideration to the Fabry patients’ petition for rehearing.

The Right Time to March In? The primary rationale for denying the original march-in petition was that, even with a forced NIH license, no competitor would be able to bring a Fabrazyme^® substitute to market before Genzyme would be able to alleviate the shortage on its own. However, as delays continue to mount, that argument seems increasingly dubious.

The NIH has also worried, particularly in denying previous march-in petitions, about the consequences of forcing biotech investors to continually weigh the possibility of government encroachment on the proprietary rights they thought they had purchased. But as the Fabrazyme^® situation becomes increasingly dire—a drug shortage with ongoing detrimental consequences to Fabry patients—the NIH must seriously consider two key questions:

(1) Would marching in here really send a troubling signal to the broader marketplace, given the significant and ongoing delays that have led to this point? and

(2) If marching in would fail to provide a meaningful remedy to these Fabry patients, then under what circumstances would the government’s march-in rights under Bayh-Dole constitute a viable remedy?

As we asked when the Fabry patients’ original petition was denied, if NIH refuses to march in here, will it ever?

The NIH has promised to evaluate new information that could change its determination “as quickly as possible to determine whether our decision should be modified.” The Fabry community and the biotech community now await the NIH’s response.

What We Learned from the Myriad Oral Argument. For all of the attention focused on the Myriad oral argument, most spectators have only one very practical question: did Monday’s argument provided any meaningful clues with respect to how the Federal Circuit might rule on appeal of the lower court’s startling ruling?

In a word: no. In a few more: we learned nothing from the Myriad argument that leaves us better able to predict how the Federal Circuit will rule in this case.

That may be unsatisfying for researchers, businesses, investors, academics and many others who, having tracked the litigation since its inception, are anxious for a resolution, but it should not come as even a mild surprise.

First, as John noted last week, it is dangerous to read too much into any oral argument. While an oral argument can be a balance-tipper in a close case, there’s no guarantee that a written judicial opinion will resemble the prior courtroom conversation.

Second, and more importantly, it is unlikely to the point of practical impossibility that the Federal Circuit’s upcoming ruling in Myriad will be the last word in the case. Whatever result the court reaches is virtually certain to be appealed and, as we wrote earlier this year, there is little reason to expect that the judicial system will finally resolve the issue of gene patenting in 2011.

What Caught Our Ear in Myriad. The limited predictive value of this week’s oral argument has not stopped media and legal commentators from dissecting how the Federal Circuit is likely to rule. While there is no way to confidently predict how the Federal Circuit will rule when it issues its opinion, likely in the next 2-3 months, here are a few of the issues raised during oral argument that caught our ear:

Procedural Arguments. The court spent considerable time addressing two procedural arguments raised by Myriad (and the other defendant-appellants): (1) that the plaintiffs in the case lack standing to maintain the lawsuit (a very technical question focused on whether these plaintiffs face enough of an immediate threat from Myriad’s patents to be allowed to challenge them) and (2) that, even if the plaintiffs were to win on all of their claims, they would not get the practical outcome they want (opening up BRCA testing beyond Myriad’s monopoly) because they failed to challenge all of the Myriad patents and claims that apply to BRCA testing (redressability, in legal jargon).

Those arguments seemed to receive more attention in court than they did in the parties’ briefs. On the one hand, this may reflect nothing more than the fact that these issues come logically first – if a plaintiff lacks standing to sue a court is barred from considering that plaintiff’s substantive claims – and there was a limited amount of time available for oral argument.

Then again, the extensive procedural discussion certainly raises the possibility that the Federal Circuit might dispose of Myriad on technical procedural grounds. This view finds some support in the concerns voiced from the bench (particularly by Judge Moore) that a ruling in Myriad could have “dramatic” consequences for the biotechnology industry, and that the substantive issues surrounding the patentability of human genes might be more appropriately addressed by Congress.

A procedural ruling, however, would fail to address an issue (the patentability of genes) that has sown uncertainty throughout the industry and created a rift within the United States government.

It would also be every bit as likely to be appealed as a substantive ruling and, in the long run, would probably accomplish nothing more than delaying the inevitable. Even if Myriad is ultimately dismissed on procedural grounds, it seems highly likely that one or more of the current plaintiffs and/or Myriad’s potential commercial competitors will continue to press the issue.

Still, because Myriad is the current patent holder and dominant BRCA testing provider, a scenario in which the Federal Circuit dealt with Myriad on procedural grounds, and thereby further delayed a substantive resolution, would likely be a practical victory for Myriad.

Whole-Genome Sequencing. As soon as the discussion shifted from procedural to substantive matters, Judge Bryson posed a pointed question to Gregory Castanias, Myriad’s attorney:

To me, at least, it is an important question as to how preclusive your patent – and any other patent on any particular gene – would be if, in effect, you have to get 100, 200 or 1,000 licenses before you can sequence the genome of an individual.

The uncertain relationship between existing gene patents and emerging whole-genome sequencing technologies and services is one we first discussed nearly two years ago, and one that has been hovering at the periphery of the Myriad litigation.

On Monday Castanias struggled to answer the question directly, noting (correctly) that it would depend in part on whether the particular method of sequencing involved “using” an isolated DNA sequence covered by Myriad’s patents.

The issue was raised directly only one other time, by Christopher Hansen of the ACLU (arguing on behalf of the plaintiff-appellees) in the context of Myriad’s BRCA method claims. Those claims involve comparing or analyzing gene sequences to identify the presence of mutations corresponding to a predisposition to breast or ovarian cancer. According to Hansen, if the judges were to compare the wild-type BRCA sequence against the publicly available genome sequence from Personal Genome Project founder George Church, side-by-side on a computer screen, they would infringe Myriad’s patents.

As we move rapidly into an age where whole-genome sequence data is inexpensive and ubiquitous, and the process of genomic interpretation is increasingly separate from genomic data generation, Hansen’s example illustrates why the disposition of Myriad’s method claims may well be more important in the long run than whether isolated DNA sequences are held to be patentable. (Myriad’s method claims, incidentally, received fairly minimal treatment during oral argument, although this may simply be due to the issue appearing last in the briefs and thus coming up last in each party’s argument, when there was little time left.)

While none of the judges responded to Hansen’s hypothetical (likely due in large part to the fact that Hansen had run over his allotted time by that point), it is encouraging to see, particularly in Bryson’s earlier comment, that the court clearly recognizes the potential for conflict between gene patents and the new generation of personalized medicine products built upon whole-genome sequencing.

However, whether the Federal Circuit will address that issue when it rules on Myriad, as with every other issue, is anybody’s guess.

Composition of Matter and Gene Patents. Predictably, the most attention was devoted to the patentability under § 101 of isolated DNA sequences. Numerous hypothetical scenarios were offered up by each of the parties, and by the judges as well: diamond mines, baseball bats in trees and even a hypothetical “magical microscope” envisioned by Neal Kumar Katyal, arguing on behalf of the Department of Justice.

One concept to which the court (and particularly Judge Lourie) returned repeatedly during the course of the argument was covalent bonding. Judge Lourie focused on the importance of covalent bonds in the DNA molecule, noting that those bonds must be broken in order to isolate sections of the molecule for purposes of examination, and suggesting that breaking those bonds renders isolated DNA different from DNA in the human body.

The focus on covalent bonds may be an effort by the court, and particularly Lourie, to find a way to apply the teaching of more than a century of cases that seem to say that patentable compositions of matter must be different in kind from their natural precursors or variants. Judge Lourie (a chemist) was playing around with the breaking of the covalent bonds during “isolation” as a potential Rubicon, beyond which isolated genes might be different in kind from those in the body.

However, Lourie’s covalent bond test was not the only one proffered. The government, for its part, offered up its own “magic microscope” test. The magic microscope (a term Judge Moore found “kitschy”) would enable the direct observation of naturally occurring DNA. According to the government’s test, any DNA sequence visible through this hypothetical device (which, if DARPA has its way, might not remain hypothetical forever) would be unpatentable. On the other hand, all other molecules (including, e.g., cDNA) not occurring in precisely the same form in nature – and thus not visible through the microscope – would be patentable.

While we wait to see whether any of the tests or hypotheticals outlined in the oral argument emerge in the written Myriad opinion, the bottom line is that the court, assuming it reaches the merits of patentable subject matter, must (1) decide what different in kind means in the genetic context and (2) apply that test to “isolation,” as the Myriad patents define that term.

The Next Myriad Mile Marker. For those who are interested in diving deeper, the Federal Circuit has made an audio transcript of the hearing available on its website (mp3). For everyone else, the next significant development in the Myriad litigation will most likely be the Federal Circuit’s opinion, which should be handed down sometime in the next few months.

At that point the parties and amici will have something concrete to digest – and likely appeal – and, depending on the outcome, Myriad, its would-be competitors and clinicians, researchers and patients with an interest in BRCA testing may be put to some difficult practical decisions. Until then, however, let the waiting – and speculation – continue

Who’s on the Panel? Federal cases on appeal are almost always heard initially by a panel of three randomly selected judges. (In rare cases all the judges of a circuit will rehear the case together, or en banc—no way to predict if that will eventually happen here.) The Federal Circuit will announce the panel for this case on Monday morning on its website. As of now, all we know is that Myriad—and only Myriad—will be heard by “Panel B+.” The + means that the makeup of that panel will be different from that of Panel B, which will hear the three other cases also scheduled for this 10 a.m. session (a panel customarily hears four arguments in a session). The + designation sometimes means that one member of the regular panel (here, B) has recused (disqualified) him or herself from the case because of some conflict, necessitating a replacement.

Chief Judge Rader has already been the subject of a recusal motion by the Myriad plaintiffs (see below), and there is also speculation that the lawyer spouses of two other judges (O’Malley and Moore) may have been involved in the filing of amicus briefs. Another possibility is that the + indicates that Myriad has been assigned to a five-judge panel, a rare expedient.

As soon as the panel is announced, expect journalists to start researching what, if anything, the three members have said about gene and methods patents in prior opinions. For example, Allison Dobson and I wrote in August 2010 about a dissent by Judge Dyk in a case involving a patent on isolated pig virus DNA. In that case (Intervet v. Merial) (pdf), Judge Dyk suggested that “whether the isolated DNA molecule, separate from any applications associated with the isolated nucleotide sequence (for example, the production of a vaccine) is patentable subject matter” is an undecided question of law—a controversial statement, given the PTO’s longstanding policy of granting such patents, with apparent Federal Circuit acquiescence. The point is that Judge Dyk’s appearance on the Myriad panel would provoke a lot of speculation.

So also with Chief Judge Rader. Back in August 2010, the Myriad plaintiffs filed a motion to have him recuse himself from participating in the case because of comments he made at two legal conferences—one sponsored by the Biotechnology Industry Organization—that the plaintiffs said indicated a preexisting view that the Myriad district court decision was wrong. As we wrote at the time, his comments were so abstract that the argument seemed far-fetched. The Federal Circuit announced that it would do nothing unless and until he were assigned to the panel, and there has been no further news beyond the enigmatic +.

How Much Difference Does Oral Argument Make Anyway? Over the course of 20+ years studying the legal profession I’ve interviewed many appellate judges about the process. They all say that they go into oral argument with an open mind, ready to be persuaded. But they also acknowledge that they’ve studied the briefs and the record and have received summaries (“bench memos”) from their law clerks, so they are intimately familiar with the case being argued. The most sensible view is that oral argument can be a balance-tipper. But appellate judges are nothing like trial jurors, who learn all they know about the case in the courtroom.

Pay Attention to the Judges’ Questions—But Not Too Much. Most judges also say that they use oral argument to clarify points they don’t fully understand and to probe potential weaknesses in the parties’ cases. So judges’ questions do reflect issues that are of concern to them.

But don’t read aggressive questioning as indicating hostility toward the side being questioned. That’s just what judges do. That’s especially true if they’ve been law professors—as many Federal Circuit judges have—because that’s part of the “Socratic method” we use in class.

On the other hand, do pay attention to the lawyers’ answers. Do they have persuasive answers to hard questions? If you didn’t think the answer made sense, maybe the judge didn’t, either.

I’ll close with an anecdote that shows the danger of reading too much into oral argument. Years ago I argued a Freedom of Information Act case before the First Circuit in Boston. Future Supreme Court Justice Stephen Breyer was on the panel. He asked a hard question, but I was expecting it and crushed it. He nodded and said, “Good answer.” I thought I had it in the bag. I lost, with Breyer voting against me.

Now, those same patients, joined by eight others, have sued Genzyme and Mt. Sinai (which the complaint erroneously describes as part of the public City University of New York, when in fact it is affiliated with the private New York University) over the shortage. The complaint (pdf) was filed on March 9, 2011 in the federal district court in Pittsburgh. The plaintiffs are represented by C. Allen Black, the same Pennsylvania patent lawyer who filed the NIH march-in petition.

Analyzing the Fabry Patients’ Complaint. The complaint asks that the case be treated as a class action, which means that the individually named plaintiffs would litigate on behalf of both themselves and all other patients who are similarly situated. Class actions in general can be dangerous for defendants because all the class members, not just the named plaintiffs, are eligible for damages. However, a case can proceed as a class action only if the court allows it. The process of class “certification” is long and legally complex, and there is no way to predict at this point whether this case will ever achieve class action status.

The complaint recites much of the same factual background as the march-in petition—a background that the NIH largely accepted in denying the petition. The complaint describes the disease and its treatment with Fabrazyme, as well as Genzyme’s contamination problems and the resulting rationing of doses to already diagnosed patients and denial of treatment to the newly diagnosed. (Of note, since the lawsuit was filed Genzyme has since encountered further difficulties with its Fabrazyme production, disclosing late last week that a nearly-final lot of the drug had to be scrapped due to problems at its Allston, MA plant.  Genzyme informed the Fabry community that, “because inventory is so limited, loss of this specific lot of Fabrazyme will have an impact on some patients in the coming months.”)

The plaintiffs allege that as a result of reduced doses and/or denial of access to Fabrazyme, “Fabry patients have either had a return of symptoms, accelerated disease development, injury, and otherwise preventable disease progression, or have died during the shortage” (¶ 62). Ten different legal claims, or counts, all seek damages “in an amount in excess of $75,000.00.” That amount has no particular significance other than that it is the minimum damages threshold a plaintiff must allege in order to get a case like this into federal court.

The complaint also puts considerable emphasis on a recent report by the European Medicines Agency (EMA), a European Union analog to the FDA in this country. In an October 22, 2010 press release (which was followed by the issuance of a more extensive report in November), the EMA noted “an increase in reported adverse events in patients treated with the lower dose of Fabrazyme that has been introduced during the shortage.” Consequently, it recommended “that physicians switch back to the full dose of Fabrazyme according to the authorized product information, depending on the availability of enzyme replacement therapy and the severity of the disease.” The plaintiffs rely on the EMA announcement to show what the defendants knew or should have known about the effects of rationing, as well to establish their duty toward Fabrazyme patients (as discussed in the next two paragraphs).

Applying Tort Theories to a Drug Shortage. The plaintiffs’ legal theories fall into three main categories. There are several claims under tort law, the body of law that governs everything from car accidents to medical malpractice cases. One claim alleges that Genzyme and Mt. Sinai were negligent—failed to act with reasonable care—in specifying and/or consenting to a Fabrazyme dose below what the FDA approved, for selling a contaminated product, and for failing to warn about the dangers of the reduced dose. To this point, the allegations are standard negligence fare. But the next three claims are highly novel and likely to prove equally controversial: that the defendants were negligent in “unreasonably using a publicly funded invention,” in failing to provide adequate reserves of the drug, and in “failing to provide or license a second source of manufacture.”

Other tort claims in the complaint allege that the same conduct amounts to negligence per se (a kind of automatic negligence that arises from the violation of a statute), and that the defendants’ conduct gives rise to strict liability in tort, a form of liability that attaches—regardless of fault—when consumers are injured by defective or hazardous products.

Usually, negligence cases come down to questions of fact: What was the standard of care in this particular case? Did the defendant violate that standard of care? Was that violation of the standard the cause (both actual and foreseeable) of the plaintiff’s injuries? All of those issues will be relevant here, especially the first one. Does the owner of a drug patent or its exclusive licensee have a duty to foresee production problems and plan for shortages? When that exclusive licensee faces shortages, does tort law require the patent holder to abrogate the exclusive license and bring in other manufacturers?

But these negligence claims will also raise some novel questions of law. Most importantly, can the user of a drug developed and patented under the Bayh-Dole Act sue the developer for negligent exercise of its patent rights? Additionally, there will be issues concerning the interaction between state negligence law and federal law, including Bayh-Dole itself and the Federal Food, Drug and Cosmetics Act, in particular whether the federal law supersedes (or preempts) state law in this situation.

In the second category of claims, the negligence allegations are repackaged as violations of numerous state consumer protection and unfair trade practices statutes, and as breaches of “warranties of merchantability and/or fitness for a particular purpose” (¶ 62)—claims that are typically raised against manufacturers of mass-marketed consumer products. The claims in this category are likely to raise issues similar to those raised by the negligence claims, and to rise or fall with them.

The third category asserts a single and, to my knowledge, unprecedented legal theory: that the defendants’ “unreasonable” use of their publicly funded invention creates liability to injured patients under the Bayh-Dole Act itself. In legal terms, the theory presumes (1) that Bayh-Dole imposes a duty on private parties who use public funds to develop a patented product to use their invention in a “reasonable” (whatever that means) way; (2) that the duty extends to the intended beneficiaries of that product; and that (3) an intended beneficiary of the product who is injured by the developer’s “unreasonable” (again, whatever that means) use of the invention can sue (in legal jargon, has standing to sue) the developer. Since this claim is so novel, there are no standards for evaluating it or predicting how a court is likely to respond.

An End Run Around Bayh-Dole? Overall, the suit represents an effort to introduce private enforcement to Bayh-Dole. That is, Bayh-Dole has usually been viewed as defining a relationship among government funding agencies, grant recipients (like universities) and, at least indirectly, for-profit private companies. Government agencies fund research at universities. To promote rapid commercialization of research results, Bayh-Dole permits the universities to patent those results. The universities typically transfer or license the patents to private companies, often faculty-led spinoffs. To ensure that the public gets the benefit of publicly funded research (or, as Bayh-Dole puts it, to “protect the public against nonuse or unreasonable use of invention”), the government agencies retain an enforcement mechanism: the threat of marching in and exploiting patented inventions themselves or licensing others to do so. Except that the government has never marched in, even when—as here—compellingly affected members of the public ask them to.

Understandably frustrated by the NIH’s inaction in the face of a critical Fabrazyme shortage, these plaintiffs have tried to inject themselves into the Bayh-Dole scheme as private enforcement agents. The suit seeks to do an end run around government march-in rights by creating substantive standards for responsible exercise of patent rights facilitated by Bayh-Dole, and then allowing private parties to seek damages for violations of those standards. If successful, the case would revolutionize the management of private rights derived from federally funded research; whether for better or worse is hard to say at this point. I also emphasize the if: so novel and creative is this lawsuit that it is all but impossible to predict how it will unfold.

The defendants’ first response to the complaint is nominally due sometime in late March or early April, depending on when it was served, but that deadline is often extended by agreement. Whenever the response comes, look for legal challenges to all of the plaintiffs’ theories, likely beginning with a motion to dismiss the complaint.