Myriad Genetics, Inc., the owner of the patents, brought the case to Federal Court of Appeals, which overturned the lower court’s decision on July 29 in a 2-1 ruling that has, at least for the time being, reaffirmed the patentability of human genes. Notably, the Obama Administrations Justice Department broke with the Patent and Trademark Office, a co-defendant in the case, in filing an amicus brief in support of the plaintiffs claim that the genes should not be patentable.

The Appeals Court also upheld Myriad’s patents on procedures for therapeutic research on BRCA 1 and 2, but agreed with the lower court that Myriad’s processes for “analyzing” and “comparing” the genes are not patentable. Despite this small concession, it does not seem likely that this will make it easier for scientists who are unaffiliated with Myriad to conduct significant research on BRCA 1 and 2.

“[Myriad’s] short sequence claims [on BRCA 1 and 2] will continue to pose problems,” said Arti Rai, the Elvin R. Latty Professor of Law at Duke Law School and an expert in patent law and innovation policy, in an interview with Science Progress. “I’m not sure that the plaintiffs at the end of the day are in a better position,” she said, noting that they will probably run into many of the same patent infringement issues that they have in the past.

Though the full effects of this ruling on the biotechnology industry and the cancer research community remain to be seen, it is by no means the last word on the issue of gene patents. The plaintiffs, a coalition of doctors, patients, breast cancer researchers, research institutions, and medical associations, are expected to ask for an en banc rehearing—in which all of the justices in the court of appeals would sit for the case, instead of a panel of only three—or appeal the case to the Supreme Court. The Supreme Court can let the appeals court decision stand, or take up the case and issue its own ruling.

Why were genes patentable in the first place?

Patents for biological materials have long been a contentious issue, and decades of Supreme Court cases have interpreted U.S. patent law, which was written over 200 years ago, to fit the complexities of property in modern biotechnology. Currently, the United States Patent and Trademark Office, or USPTO, can issue patents for genes, animals, bacteria, and plants—as long as they are, according to the Patent Act of 1790, “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.”

Patents for biological materials must also fit the “product of nature doctrine,” a standard that excludes entities that occur in nature from patent eligibility. The doctrine was first used in ex Parte Latimer (1889) when the U.S. Patent Commissioner rejected a patent application for isolated pine needle fibers. It was further developed in Funk Bros. Seed Company vs. Kalo Inoculant Co. (1948) when the Supreme Court ruled that natural phenomena and processes are “free to all men and reserved exclusively to none,” and rejected a patent application for a novel mixture of bacteria and soil.

Genes, bacteria, and animals seem like they should fall in the “product of nature” category, but later Supreme Court decisions have shown that sufficient modification of a naturally occurring entity can make it enough of a “new manufacture or composition of matter” to be eligible for a patent. In Diamond v. Chakrabarty (1980), the Supreme Court permitted a patent for a genetically engineered bacterium. In 1984, the USPTO granted a patent to the creators of the “oncomouse,” a mouse that was engineered to express cancer genes in every cell in its body.

Thanks to the precedents set by these and other cases, the USPTO has issued over 40,000 gene patents to date. Myriad Genetics justified their own gene patents via the argument that isolated forms of BRCA 1 and 2 do not occur in nature, and that such isolation results in the formation of different chemical bond structures within the molecules.

In 2010, the New York district court invalidated the BRCA 1 and 2 patents on the basis that the genes, even when isolated, have not acquired any changes to the fundamental nature of its DNA sequence or the genetic information they contain. The majority opinions of the recent federal appeals court ruling, on the contrary, agreed with Myriad Genetics’ original justification for the patent. They also noted that isolated BRCA 1 and 2 can be modified in the lab to form cDNAs, which can then be used to develop genetic probes and markers—a process for which BRCA 1 and 2 are only useful if they are isolated. The dissenting opinion by Justice William Bryson, however, held that the BRCA 1 and 2 genes on their own should not be patentable because Myriad did not discover the genes or use any novel techniques to isolate them. However, he held that the cDNAs, since they are modified by researchers, are patentable.

Gene patents and scientific progress

While the technicalities of what constitutes a “product of nature” or a “manufacture” seem to spark disagreement in the case of isolated genes, the stakes are high for a decision on gene patentability.  According to the U.S. Constitution, patents are supposed to “promote the Progress of Science and useful Arts” by giving inventors the exclusive right to exploit their inventions for a limited period of time.

This is true much of the time, as patents encourage innovation and scientific progress by ensuring that inventors can reap the benefits of their work. Plus, a ruling that would invalidate all existing gene patents could potentially have far-reaching negative effects on patent holders and the biotechnology industry in general.

But the plaintiffs in the Myriad case disagree, and argue that gene patents significantly impede, rather than promote, scientific progress. Researchers from Oncormed and the University of Pennsylvania Genetic Diagnostic Laboratory, or GDL, who are plaintiffs in the case, were already conducting research on and offering their own diagnostic genetic testing services for BRCA 1 and 2 when Myriad acquired its patents on the genes and associated research and testing processes. However, these researchers were forced to stop conducting diagnostic testing and therapeutic research in the late 1990s after Myriad sent them cease and desist orders for patent infringement.

Myriad’s vigorous enforcement of their BRCA patents has rendered them the sole provider of genetic testing for BRCA 1 and 2 in the United States. As a result, women who wish to learn of their genetic risk for breast and ovarian cancer cannot turn to other diagnostics providers for confirmatory tests. Nor can patients seek cheaper alternatives to Myriad’s services, whose BRCA tests cost between $250 and $4,000.

In addition to limiting the competition among diagnostic test providers, Myriad’s monopoly on BRCA also allows them to control the progress of BRCA research. Other scientists cannot research potential improvements for BRCA therapeutics or expand scientific understanding of high-risk BRCA gene mutations without infringing Myriad’s patents.

An issue of authority

The federal appeals court opinions acknowledge the question of whether gene patents promote or impede scientific progress, but instead of answering it outright, they defer it to Congress and do not deal with the case beyond the scope of patent law. “If the law is to be changed, and DNA inventions excluded from the broad scope of [patent law] contrary to the settled expectation of the inventing community, the decision must come not from the courts, but from Congress,” wrote Judge Lourie in the court opinion.

While Congress might be in a better position than the judicial system to consider social, economic, and scientific implications of gene patents, they have never been particularly successful in passing legislation concerning patentable subject matter. “These are policy issues to be decided by Congress, but the fact is that Congress is unlikely to act in this area,” said Rai.

If Congress doesn’t speak out on the issue, the Supreme Court has the authority to make its own decision on the patentability of genes. “For better or for worse,” said Rai, “a court decision in this area may end up being the final word.”

As such, the federal appeals court ruling is just another step in what has been, and what will continue to be, a long process of sorting out property in the genome. The final outcome for the genetic research community and gene patent holders remains to be seen.

Michelle Spektor recently completed her internship at Science Progress and will complete her bachelor’s degree at Cornell University this year.

The Supreme Court settled a six-year-long patent dispute between Stanford University and Roche Molecular Systems Inc., a global diagnostics and pharmaceutical company based in Switzerland, over the rights to an HIV test developed by a researcher who worked at both institutions. A major point of contention was an interpretation of the University and Small Business Patent Procedures Act of 1980, commonly referred to as the Bayh-Dole Act, which allows research institutions and universities to obtain patents for federally funded inventions they produce. The question in this case was whether or not the Bayh-Dole Act automatically grants the rights to such inventions to the institutions responsible for their creation, or if the individual inventor can unilaterally assign the rights to third parties.

The Stanford researcher who developed the test, Mark Holodniy, signed a contract that assigned Stanford University the rights to his invention in 1988. Since research on the HIV test was funded in part by the National Institutes of Health, the university acquired several patents for the procedure under the Bayh-Dole Act. When Holodniy used facilities at Cetus, a biotechnology company later purchased by Roche, in 1989 to conduct some of his work he signed a visitor confidentiality agreement that assigned the rights to his inventions to Cetus (and therefore Roche).

When Roche commercialized and distributed the completed HIV test, Stanford sued for patent infringement. Roche claimed the suit was invalid because the contract Holodniy signed with Cetus made Roche a co-owner of the patents. Stanford argued that the Bayh-Dole Act granted the university superior rights to the invention, and that Holodniy never had the right to assign ownership of the test to Roche (via Cetus).

In a 7-2 majority decision, the Supreme Court ruled in favor of Roche and interpreted the Bayh-Dole Act to not automatically vest ownership in federally funded inventions to public institutions, leaving room for the individual inventor to contract the rights to his or her invention to other parties. Roche and Stanford University were deemed co-owners of the patents.

A close look at the Bayh-Dole Act

The Bayh-Dole Act, named for Sens. Birch Bayh (D-IN) and Bob Dole (R-KS) was created in 1980 to respond to the need to transform research findings into commercialized products that could be distributed to the public, a process known as “tech transfer.”

Before the Bayh-Dole Act, patents on federally funded inventions could only be acquired by the United States government, an inefficient arrangement that left it with tens of thousands of patents, few of which were ever licensed to private industries and brought to the marketplace. Since the act allows research institutions to patent the products of their federally funded projects, these institutions can license their inventions to private companies so that they can be produced and distributed—an arrangement that has significantly improved tech transfer over the last few decades. It also allows publicly funded institutions to receive a share of the profit on the sale of the commercialized inventions, ensuring that public funding for research products returns to the public institutions that created them for investment in future research.

In light of the history and goals of the Bayh-Dole Act, the Court’s majority decision to vest the primary ownership of an invention to the inventor instead of the associated public research institution seems to contradict the act’s central purpose. This opinion is in line with an amicus curiae brief filed by the United States on behalf of Stanford, which stated that “allowing an inventor to transfer ownership of a federally funded invention outside The Bayh-Dole Act’s framework frustrates Congress’s purposes” in the creation of the act: protecting taxpayer investments, encouraging research and innovation, and benefiting United States industry and labor.

Arti Rai, the Elvin R. Latty Professor of Law at Duke Law School and an expert in patent law and innovation policy, said that the Court’s decision to prioritize the inventor even in the context of publicly funded research is not unexpected. “The default rule in patent law has long been that patents belong in the first instance to the inventor, and then can be assigned away via contract to other parties,” said Rai in an interview with Science Progress. The majority opinion in this case cited an over 200-year-old tradition of U.S. patent law, which indicates the inventor as the primary proprietor of his or her ideas and inventions, as a significant reason for their ruling.

Justice Stephen Breyer’s dissenting opinion, which was joined by Justice Ruth Bader Ginsburg, suggested that the history and framework of the Bayh-Dole Act changes the traditional hierarchy of ownership retention in the special circumstance of federally funded research, giving the highest priority to the federally funded institution, followed by the government, and then the inventor.  Whether or not the language of the Bayh-Dole Act actually provides for this is difficult to determine.

“There are situations where the default has been changed by particular statutes, but they tend to be more definitive than the Bayh-Dole Act is in terms of changing that rule,” said Rai. “It’s difficult when the specific language is hardly a model of clarity. There is nothing in legal history or the Bayh Dole Act that suggests [Congress and the creators of the act] thought about the possibility of conflicting assignment agreements.”

Implications of the decision

While the decision in this case lends difficulty to balancing the specific language of the Bayh-Dole Act with its overall purpose, the alternative ruling would present several issues as well. The majority opinion noted that allowing institutions to automatically retain ownership of federally funded inventions opens the door for institutions to do so even if only one dollar of federal funding is used. It also cited the possibility that institutions could automatically acquire ownership of ideas that were conceived by an inventor before he or she affiliated with the institution in question.

Stanford v. Roche also reflects difficulties in accounting for the collaborative nature of scientific research and innovation. In this case, the research and conception of the HIV test did not exclusively occur at Stanford, and Roche’s role in the process was not limited to the commercialization of the finished product. Roche (via Cetus) had already started working on developing an HIV test before they entered into collaboration with the university. Although the inventor was employed by Stanford and not Cetus, he still utilized Cetus’s facilities with the purpose of learning how to perform a fast DNA replication technique called polymerase chain reaction (PCR), a relatively new procedure at the time. This technique was developed and patented by Cetus (and then sold to Roche), and also happened to be crucial to Holodniy’s development of the HIV test.

“I think the majority opinion did raise the idea that Roche, in this case, was a really involved third party,” said Rai. “If the university automatically got rights to everything their funding had played even a small part in, a third party like Roche would be negatively affected.” The automatic retention of ownership by public institutions when third-party collaborators make instrumental contributions to the research process does seem problematic. A ruling of that kind might have alienated the private sector, which could hinder innovation and commercialization by making private industries more reluctant to collaborate with public and academic institutions.

However, the majority ruling’s establishment of Roche as a co-owner of the patents to the HIV test means that Roche has no contractual obligation to share royalties with Stanford University, rendering the Supreme Court’s interpretation of the Bayh-Dole Act as one that seems to support transnational corporations at the expense of research institutions funded by the American public. “The dissent was a bit more concerned with the overall purpose of Bayh-Dole, which is commercialization,” said Rai. “The majority was perhaps more concerned with what would happen to the private sector that thought it had rights because it funded some of the work.”

Stanford University warned that the Court’s decision could have significant negative impacts on federally funded inventions, but it is possible that these impacts may be more symbolic than effectual. “It is a preservation of status quo more than anything else,” said Rai.

Although the ruling may not seriously affect the tech transfer process, it might strain already-tense public-private and academic-industrial relationships. But the same would be true for an opposite ruling. “It just shows that no matter how you set the default rule, if universities and the private sector are both concerned about making money, as they are, you’re going to have conflicts.”

In the meantime, universities and other research institutions can continue to acquire patents for federally funded inventions under the Bayh-Dole Act; they will just have to pay closer attention to the contracts they engage in with their employees and work harder to ensure that their researchers do not sign conflicting contracts with third parties.

Michelle Spektor is a Science Progress intern at the Center for American Progress and is an undergraduate at Cornell University in Ithaca, New York.What do you think? Comment on this article and join the conversation at facebook.com/scienceprogress or by tweeting at us @scienceprogress.

Indeed, for the greater part of the last decade, legislative proposals for patent reform have languished as competing industry and trade group interests fought to a standstill. Meanwhile, the Supreme Court and the executive branch have taken up the mantle of reform, producing significant improvement in such areas as standards for evaluating patentability, remedies for patent infringement, and numerous administrative reforms to improve both the timeliness and quality of review.

Yet there is important patent reform that only the legislature can implement. Thus, last week’s 95-5 Senate vote in favor of the America Invents Act represents something of a watershed. Indeed, given the background history of fierce clashes between interest groups, and the everyday difficulties of achieving bipartisan agreement, the Senate action deserves commendation irrespective of what ultimately happens in the House.

There is no question that our patent system needs further improvement. It currently takes at least 34 months on average for the Patent and Trademark Office, or PTO, to finalize a patent application. The average wait is even greater (more than 40 months) if one counts the large number of applications that are resubmitted one or more times. As a consequence, a backlog of more than 700,000 patent applications currently awaits review. These long waits create uncertainty for inventors, investors, and entrepreneurs, dampening innovation. What’s more, although the PTO is entirely supported by applicant fees, it does not even possess fee-setting authority. No self-supporting institution that lacks the ability to charge for the costs it incurs can possibly perform efficiently.

The America Invents Act, if taken up by the House of Representatives and signed by the president, would address these problems in several ways. First and most significantly, it would confer fee-setting authority upon the Patent and Trademark Office. As I have discussed at length elsewhere, with fee-setting authority of the sort given in the Senate bill (and a related guarantee that fees won’t be diverted by Congress to other uses, as has happened repeatedly in the past), the PTO could much more readily work to create processing times that were suitable both for applicants and for potential competitors. The PTO could also, if it so desired, use this authority to create incentives for applicants to file well-drafted applications that could be processed in one cycle without having to be resubmitted, thereby further reducing administrative delays.

Another significant (though contested) feature of the legislation is its enactment of a first-to file system. Currently, unlike every other major global economy, the United States operates under a “first-to-invent” system. At least in theory, the U.S. approach therefore accords patent rights to whomever can prove they first invented a product or technology. The operative word is theory, however, as the actual impact of the first-to-invent system is far from clear. So-called interference disputes—that is, the length and expensive administrative proceedings in which first and second patent filers settle who was first to invent—account for only about .01 percent of cases. Meanwhile, the asymmetry between the U.S. system and that of other major economies creates problems both for applicants who file globally and for PTO efforts to reuse the work product of other patent offices.

In response to data regarding the negligible role of interferences, proponents of the status quo (typically small inventors) raise two reasonable points. First, ordinary patent prosecutions, not interferences, are the arena where a first-to-invent system matters. In the prosecution context, the U.S. system allows an applicant to argue that third-party disclosures of invention that arise after the date of invention, but before the date of filing, should not be used to reject the patent application. As a recent study by Dennis Crouch documents, however, attempts by applicants to assert a pre-filing invention date arise in only 0.1 percent of cases. Moreover, small inventors appear to assert pre-filing invention dates “less often and less successfully than large, publicly traded companies.” Thus, at least in the prosecution context, the first-to-invent system appears to disadvantage precisely those small inventors who are lobbying to keep it.

Second, some critics assert that empirical studies of current interference proceedings cannot necessarily predict what would happen in the counterfactual situation of a shift to a first-to-file system. Perhaps in that context, critics of reform argue, large firms that no longer feared an interference challenge would race to the patent office and file applications, including applications based on information appropriated from small inventors. That scenario seems unlikely, however. The current interference system would hardly seem to present much of a barrier to racing activity on the part of large firms. Additionally, the Senate bill bars those who appropriate information from others from using that information to file patents or even to create prior art.

In addition to fee-setting authority and first-to-file language, the Senate bill also contains improved administrative alternatives to costly and inefficient litigation over the validity of issued patents. Although these improvements may not go as far as one might like, they are certainly a step forward.

The incremental improvements driven by the judicial and executive branches in the last few years must be accompanied by legislation that addresses what only the legislature can do. The Senate bill is thus a worthy and necessary endeavor.

Arti K. Rai is the Elvin R. Latty Professor of Law at Duke Law School. From 2009–2010, she served as the administrator for external affairs at the USPTO. This article represents her views only.

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Event: Regional Innovation Clusters: Advancing the Next Economy

Amid today’s stumbling economic recovery, policymakers are examining a variety of measures to help businesses compete and grow their workforces. As part of this effort, it is critical that they understand how regional economies across our country stitch themselves together from the bottom up—what makes them tick and what they need to grow and thrive in the 21st century. Alas, federal innovation policies aimed at boosting the competitiveness of our economy through investments in science and technology commercialization are often grounded in 20th-century economic development strategies that overlook the importance of regional economies and no longer match the needs of the 21st-century global economy.

Academics and policymakers alike understand the limitations of our current policies at the macroeconomic level. Federal funding for these commercialization programs, at less than 10 percent of the $150 billion a year we invest in basic scientific research, is “small beer”—a trivial amount given the challenges our nation faces from our global competitors. And federal programs designed to implement these policies are divided into a chaotic array of “silos”—policy speak for mutually unconnected programs— that make it exceedingly hard for the federal government to act upon any strategy designed to overcome our nation’s economic policy limitations.

At the regional level, however, many businesses and universities, state economic development agencies and community colleges, venture capitalists and commercial bankers all depend on current federal innovation policy funds to pay for or complement their own efforts to boost commercialization of game-changing discoveries, incremental manufacturing, and service innovation alike. Despite the clear limitations of existing federal innovation programs, they remain important to our national economic competitiveness. So understanding the efficacy of these federal innovation programs is the first step toward understanding how to improve them or replace them.

That is what we set out to do in this paper in one regional economy of our country—the eastern Midwest region that includes Pittsburgh in western Pennsylvania; and Cleveland, Akron, and Youngstown in northeast Ohio. The region, anchored by its major cities Pittsburgh and Cleveland, faces distinct challenges and opportunities. Regional economic growth, of course, is everywhere local and interconnected, but how much so depends on the vibrancy of each region’s innovative ecosystem. Silicon Valley in California, or the Route 128 corridor around Boston are famous “regional innovation clusters” in which businesses large and small, universities, federal labs, and financiers interact every day in a heady mix of creativity that powers our nation’s innovation economy. Places that have tried to copy their unique recipes, however, have not been very successful. And those places that succeeded at creating a high technology regional economy, such as North Carolina’s Research Triangle Park and San Diego’s Connect project, found that they needed to pave their own path.

In similar vein, Hollywood has a different mix of players who achieve the same thing in southern California for our entertainment industries. And Nashville serves the same purpose for country music. The upshot: Every successful regional innovation cluster defines itself idiosyncratically and specifically to its own context, depending on its own defining economic activity—be it entertainment, biotechnology, information technology, or advanced manufacturing.

But older industrial areas such as Pittsburgh, Cleveland, Akron, and Youngstown are places with substantial infrastructure and a proud industrial heritage that are struggling to redefine themselves in the global economy. The large corporations headquartered there that served as the backbone of the region’s 20th-century industrial economy are neither as numerous as they were 50 years ago nor as central to the region’s core economic competitiveness. In many different ways these companies have squandered their competitive advantages or watched as the forces of globalization overwhelmed those advantages.

This leaves entrepreneurship (defined as new firm formation and scale-up) and innovation (defined as the creation of value in an economy no matter the size of the company or the source of the idea) as the most viable strategies for the economic future of the region. Our study sought out these new players in this region’s innovation ecosystem to ask them not only about the efficacy of federal innovation programs but also about how they interact with each other—how much they felt they worked and lived in an emerging regional innovation cluster. Along the way, we also asked these players about the region in search of the strengths and weaknesses of this once-thriving, metal-bending region of our country in the 21st century.

Our survey of these firms and players on these subjects is the first one ever conducted. And our one-on-one interviews with dozens of key players in this new ecosystem only buttressed what we learned from our survey. We found in the eastern Midwest of our country an ecosystem of innovation and entrepreneurship that is emerging and vibrant, but also fragile, requiring the sustained efforts of local, state, and federal agencies working together to help firms survive and thrive. Problem is, we also found that local innovation programs that connect well with entrepreneurs are limited in scale, and the handoff with federal programs can be problematic at best because these programs are also limited as well as disconnected from each other.

Within this one region, we find examples of companies that have worked well with the limited resources available to them. But many others still have a ways to go. We also find universities and state economic development agencies that thoroughly understand the role they need to play in developing a thriving regional innovation cluster. But we also learn about the limitations these institutions face.

In the pages that follow, we will detail the results of our survey then present our overarching analysis of this seminal and difficult data-gathering effort accompanied by our on-the-ground interviews. The information we gleaned is admittedly difficult to assemble into succinct categories. The complexity of the region’s rolling transformation from industrial heartland to a new innovation-driven ecosystem for the 21st century is very hard to capture in clean “snapshots.” Briefly, however, we discovered that:

• Financing is lacking both for young innovative companies and for established medium-sized companies as they try to carry promising new or incremental technologies to market.
• Accessing federal innovation funds is exceedingly time consuming, often self-defeating, and in the end usually too small to be of enduring use.
• State and local innovation funds are pursued to a greater degree than federal programs but are too small for the needs of the region’s firms.
• Federal, state, and local funding programs nonetheless can be useful in attracting private financing even though these programs are not well-coordinated.

These findings are troubling for a variety of reasons. Many entrepreneurial business ventures depend on these government programs as they discover, develop, and begin to move innovation toward the market. Without critical public support, these entrepreneurs may not be able to survive. For a long time, economic development policymakers have recognized that the infamous “valleys of death,” where good ideas lack the financing to become companies that hire well-paid workers, seriously threaten the creation of new firms and the expansion of existing firms. This debilitating financing gap is compounded by current economic conditions and a banking crisis. The result: The entire spectrum of small- and medium-sized firms and even larger firms in the region face a crisis in securing expansion and working capital.

But our survey turned up some promising news, too. Specifically:

• Finding management, engineering talent, and well-trained workers in the region is not a significant challenge for companies.
• Startup companies and established small- and medium-sized firms are building on the region’s historical strength in industrial activity to create new products and services in emerging industry clusters within the region.
• These companies recognize they operate in clusters and would welcome a regional innovation cluster coordinator who could bring together private sector companies; nonprofit organizations such as universities; and federal, state, and local government officials to better align economic policy with the needs of companies in the region.

These core findings underscore the need for the federal government to overhaul its innovation policies and to work more closely with state and local leaders in the public and private sectors to sort out what works and what does not. Our study also points to the need to completely rethink how we go about encouraging regional economic development in the 21st century.

Proposing specific policy proposals based on one survey of one regional economy would not be wise, but there is enough academic research and policymaking experience about innovation to support a set of policy principles that are buttressed significantly by the research we have just completed. We will detail these, too, in the pages that follow, but briefly we believe that:

• Bottom-up, locally organized innovation programs that stitch together federal, state, and local economic development programs would serve our national economy best in the 21st century. This should be financed through public-private partnerships that include all the players in a given regional innovation cluster.
• The federal government has a major facilitating role to play in this process— one that includes significant increases in financing without monopolizing decision making.
• Each locally organized cluster will be different and thus will need region-specific support from federal, state, and local governments.

We believe our survey and our analysis demonstrates the need for the Obama administration and especially Congress to embrace these principles as they go about reforming our economic development programs to meet the needs of the 21st-century innovation economy. Pittsburgh, Cleveland, Akron, Youngstown, and their surrounding communities are changing rapidly because of globalization and in reaction to globalization. Our policymakers in Washington, in statehouses, and in municipal town halls need to give them the tools they need to succeed.

Maryann P. Feldman is the S.K. Heninger Distinguished Chair in Public Policy at the University of North Carolina, Chapel Hill, and Lauren Lanahan is a graduate student in the Department of Public Policy at the University of North Carolina, Chapel Hill.

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Event: Regional Innovation Clusters: Advancing the Next Economy

The full implications of the surprise decision are not yet clear, but gene patents are a contentious intellectual property issue both because they underpin significant investments in the biotechnology industry and because they might pose barriers to increasingly complex genomic research. The ruling is also noteworthy because it invalidates both the patents on the genes themselves and patents for the methods of analyzing and comparing genes to identify mutations in the genetic material.

Some of the patents in question are for the sequences of DNA that make up the BRCA1 and BRCA2 genes. Mutations on these genes are linked to 3 to 5 percent of breast cancer in the United States and 10 to 15 percent of ovarian cancer, according to the Centers for Disease Control and Prevention. But for women with a family history of cancer, genetic testing can be an important medical decision, as BRCA1 and BRCA2 mutations carry a 60 percent lifetime risk of breast cancer and up to a 40 percent risk of ovarian cancer.

Myriad holds patents on the genes along with the University of Utah Research Foundation. As a result, Myriad is the only company that can market a test for the mutations, and it charges as much as $3,000.

Filmmaker Johanna Rudnick spoke with Science Progress in 2008 about her documentary, In the Family, which chronicles her own discovery at age 27 that she carries a mutation on the BRCA1 gene. “There is no other, cheaper test that you could go get in another laboratory, because they have the exclusive patent,” she explained, adding that Myriad also controls the efficacy of the test—there is no other company to turn to for a second opinion.

There are about 40,000 patents that currently protect some 20 percent of the human genome. Last year, a federal advisory panel recommended exceptions from patent infringement liability for genetic research. The proposal came from the Secretary’s Advisory Committee on Genetics, Health, and Society, known as SACGHS, at the U.S. Department of Health and Human Services. But Timothy Caulfield at the University of Alberta argued here at Science Progress that there is little data to back up the claim the gene patents inhibit reserach. “A 2005 study done for the National Academy of Sciences found only 1 percent of the scientists surveyed reported suffering a project delay of more than 1 month due to patents,” he wrote.

Patents are designed to foster innovation, not stand in the way. That’s why patents are public documents that detail the inner workings of a new invention, exposing the idea for anyone to see and understand. Inventors are protected for the life the patent, currently 20 years, from anyone else copying their idea, but in exchange, they share their technology with the rest of the world, advancing knowledge.

Yet the District Court ruling does not hinge on claims about the impact of the patents on research. It deals instead with whether or not the genes and the processes for analyzing them are patentable in the first place.

An analysis of the ruling posted at Genomics Law Report makes it clear that the decision presents DNA as pure information—whether it is part of a complete genome or isolated in the form protected by Myriad’s patents. From the judgment itself:

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 not the information it encodes (pp. 3-4).

That is, patents on the chemicals that make up specific sequences of DNA are no different from the information they encode in the human genome. And this naturally occurring information is not eligible for patent protection.

The decision in this trial court for the Southern District of New York is not binding precedent for other trial courts, though it could influence thinking elsewhere. But Myriad has the right to appeal the case the Court of Appeals for the Federal Circuit, and has indicated it will do just that. This process could take more than a year, and ultimately, if the case proceeded to the Supreme Court, the justices there would have the final say on the matter.

The implications for the biotech industry and medical research are uncertain at the moment. “We do not foresee this decision producing any radical changes in commercial, clinical or other activity surrounding Myriad’s BRCA patents, or gene patents more broadly,” write the lawyers at Genomics Law Report. The New York Times quotes Bryan Roberts, a Silicon Valley venture capitalist, who suggests that the work of discovering genes and developing the accompanying diagnostic tests will move to university laboratories: “The government is going to become the funder for content discovery because it’s going to be very hard to justify it outside of academia.”

But the ruling did not merely invalidate the patents on the gene sequences themselves. It went even further and invalidated the method patents on the processes for analyzing the genes. The Supreme Court is currently considering a case involving method patents, and that ruling could have implications for the appeal on yesterday’s decision. The case, referred to as Bilski, focuses on a business method patent on a process for hedging commodities risks.

The current rule for testing method patents laid out by the Federal Circuit in Bilski requires that the process be connected to a particular machine or device or that the process transform an article or piece of matter into something else. In yesterday’s ruling, Judge Sweet found that the Myriad patents fail this test, writing, “because the claimed comparisons of DNA sequences are abstract mental processes, they also constitute unpatentable subject matter” (p. 4).

The Supreme Court’s decision could uphold the test or propose a new set of rules that would become the legal precedent. This, in turn, could shape not just Myriad’s appeal, but future decisions on intellectual property involving innovative biotech processes.

Andrew Plemmons Pratt is the managing editor for Science Progress.

In a press release, AUTM recognized that the institutions “have relatively little influence over companies’ decisions about the pricing and distribution of drugs, vaccines, devices, and other medical technologies in developing countries. However, they are committed to make every effort to ensure that their intellectual property does not become a barrier to access.”

The statement of principles commits the signatories to “make vigorous efforts to develop creative and effective licensing strategies that help to promote global access to health-related technologies,” affirming that “intellectual property should not become a barrier to essential health-related technologies needed by patients in developing countries.” It goes on to say that the institutions should negotiate agreements that promote access through, for instance, non-exclusive licensing or tiered pricing. It also outlines a commitment to investing in research and development on diseases that affect poor countries.

The document also contains a commitment to developing metrics on the impact of the policies and to revisiting the statement biennially.

Universities Allied for Essential Medicines, a student group backed by the Ford Foundation, has been pressuring the schools to change their technology transfer rules since 2001. In its press release, the group heralded the victory, but said it “sees this document as a floor for future policies rather than a ceiling and we hope that other universities will go further still.”

Since Monday, the National Institutes of Health, the University of Illinois Chicago, the University of Illinois Urbana-Champaign, and the Centers for Disease Control and Prevention have also endorsed the principles.

The suit claims that “genes cannot be patented because they exist as naturally occurring products of nature,” an argument David Koepsell made here at Science Progress, writing that “patenting unmodified genes rewards discovery, not invention.”

But Timothy Caulfield argued at SP just last week that despite the claims that gene patents impede upstream basic research, there just isn’t data to back up the charge.

On October 9th, the most recent call for change came from the Secretary’s Advisory Committee on Genetics, Health, and Society, known as SACGHS, at the U.S. Department of Health and Human Services. Among other things, the Committee recommended the “creation of an exemption from patent infringement liability for those who use patent-protected genes in the pursuit of research.”

So, why all the fuss? While the concerns associated with gene patents are varied, one has had the most policy traction: the idea that patents on sequences of genetic information hurt research, especially upstream, basic research. The worry is that patents will hurt science by making it difficult to acquire the rights to all necessary research inputs. Research will slow, become more inefficient and expensive—or researchers will simply avoid doing research on patented, yet scientifically valuable, genes.

If it were true that patents impede biomedical research, patents would be cutting against the very reason for their existence, the stimulation of innovation. As such, it makes sense that this concern over the impact of patents on research—called a “patent thicket” or an “anti-commons”—is often the focus of the policy activity. For example, Congressman Xavier Beccera (D-CA) justified his support of the Genomic Research and Accessibility Act on the grounds that “[t]he practice of gene patenting is preventing critical research from advancing because scientists are wary of trespassing patent laws.”

At first blush, all this policy activity seems to make sense: a logical response to a profound social problem. But there is a hitch. There is little evidence that the problem exists. There is lots of social angst, but no good data showing a widespread patent thicket/anti-commons phenomenon. Moreover, the gene patent question may actually distract us from more important problems related to the distorting effects of commercialization on basic biomedical research.

Through all this public dialogue and political debate, the practice of gene patenting has marched forward more or less unabated. There has been some tweaking of patent policy—such as a 2001 tightening of the patent criteria requiring inventors to disclose a clear use to the gene—but, in general, every jurisdiction embraces the practice. You can get a gene patent in Japan, Canada, the United Kingdom, all through continental Europe and, of course, in the United States. Calculations estimate that there are well over 40,000 patents issues covering over 20 percent of the entire human genome.

A large 2007 study by the American Association for the Advancement of Science found “very little evidence of an ‘anticommons problem.’” A 2005 study done for the National Academy of Sciences found only 1 percent of the scientists surveyed reported suffering a project delay of more than 1 month due to patents. My own research on the Canadian genetic research community, published in early 2009, revealed lots of researcher concern about gene patents, but little evidence that they are actually having a detrimental impact on the research environment.

Many others have noted the absence of evidence that gene patents impede research, including law professor Chris Holman, who wrote in a 2007 paper: “The paucity of documented examples in which the fears surrounding gene patents have manifested themselves is striking, particularly when one considers the high level of public concern and the extraordinary nature of the proposed legislative fix.”

Given all this data and commentary, one can only speculate as to why the anti-commons/patent thicket argument continues as the justification for reform. It does have great intuitive appeal, and it seems a logical consequence of the existence of numerous overlapping patents. There have also been a number of high-profile controversies that seem to confirm the concern, most notably when the company Myriad Genetics enforced patents on a gene strongly correlated with dramatic risks of breast cancer. But as all good scientists and clinicians know, anecdotes are not good evidence—especially when there are more systematic data pointing in the opposite direction.

In addition, we should not conflate the issues. The Myriad controversy, which has been the dominant gene patent cautionary tale, is not really an anti-commons/patent thicket story. The Myriad case is more about patient access to tests and the development of downstream technologies. These are tremendously important issues, for sure, but not evidence of a breakdown of the upstream research environment.

I am not some rabid, pro-industry patent supporter. On the contrary, much of my career has been focused on an exploration of the concerns associated with the commercialization of the research environment. In fact, this is one of the reasons I get frustrated with the patent debate. While the apparent disconnect between policy concern and evidence is a significant dilemma on its own, I think there is a bigger problem. By focusing on gene patents, we seem to be downplaying other concerns associated with the commercialization ethos that increasingly permeates the research environment.

There is solid evidence that commercialization pressure and the involvement of industry can:

• adversely affect the collaborative nature of research
• increase data withholding behavior (that is, stop researchers from sharing information)
• lead to the premature implementation of technologies
• distort research results and corrode public trust.

For example, a 2009 study by Hong and Walsh concluded that “commercial linkages and increased pressures from scientific competition” was a predictor of increased data withholding. This study also found that, in the realm of biology, data withholding was not correlated with patenting. Commercialization pressure, not patenting, is the problem.

In many respects, patents are just a tool in the commercialization process. How many of the documented issues associated with commercialization and industry involvement will go away if patents are banned? Might some get worse? If patents are removed and commercialization pressure remains, might scientists become even more secretive and firms more aggressive?

To be fair, not all the policy reports focus on the “patents hurt research” theme. The recent recommendations by the SACGHS seem more concerned with the downstream impact of patents on access and the development of genetic technologies. And the lack of an observable problem may only be temporary. As technologies move closer to the clinic, patents may become more valuable and, perhaps, litigation and aggressive enforcement more common. But, at the current time, we need to recognize that despite all the noise, there is still no solid evidence that gene patents hurt basic research.

This whole debate also engages the interesting question of how much “evidence” should be required to justify policy change. If patents are viewed as a “right” owed by liberal democratic societies to inventors, the evidentiary hurdle might be quite high. You need to muster lots of evidence if you are going to monkey with a “right.” But if patents are a “privilege”—and I think they are—granted by society for the good of society, the evidentiary hurdle might be lower. Indeed, one could argue that a society should have some flexibility to try different strategies in the hope of maximizing the benefits of the innovation process. But even in this context, arguments for reform must be based on an honest assessment of available evidence—not on assertions that conflict with the facts.

There are, undoubtedly, problems with the current intellectual property system. And there are interesting philosophical arguments about the appropriateness of allowing patents on naturally occurring entities like genes—arguments that the courts in both Canada and the United States have largely rejected. As such, the patent debate seems likely to continue for years to come. And because it is surfacing in other domains such as stem cell research, we need to get our policy arguments in order. We need more methodologically robust research on the true benefits and harms of patents. This will allow for a more informed debate on the fundamental patent tradeoff: that is, the granting of a limited-term monopoly for the benefit of society.

Timothy Caulfield, LLM, FRSC, is the Canada Research Chair in Health Law and Policy, and a Professor in the Faculty of Law and School of Public Health at the University of Alberta.

Or so the theory goes.

In practice, getting a direct financial return from research activities requires universities to patent their work and thereby obtain ownership of the intellectual property that they can sell or license. Since the passage of the Bayh-Dole Act in 1980—which allows public entities to patent ideas derived from federally funded research—universities around the country have set up technology transfer offices and aggressively worked to patent research-related ideas. The number of university patent offices has increased one hundred-fold, and the number of university patents sixteen-fold, since 1980, according to research by Stanford University intellectual property professor Mark A. Lemley.

In the best cases, patenting and licensing work well. New York University, for example, stands to reap nearly $1 billion in royalties for work it did on Remicade, a successful arthritis drug, notes journalist Richard Monastersky in a recent article in the Chronicle of Higher Education. But substantial financial returns are not always in the cards. A survey conducted by the Association of University Technology Managers found that in 2003, only 15 of 191 surveyed institutions received more than $20 million in licensing revenue.

What’s more, a university’s technology transfer office and its mission to earn money for the university can get in the way of deploying new ideas. Universities and researchers are reluctant to discuss ongoing research with private companies prior to starting the invention disclosure or patent process for fear of losing their IP rights. And they can also be cautious about disclosing too much about an idea for fear that companies will be able to make use of the research without paying a licensing fee, notes journalist Ed Silverman in a recent article in The Scientist.

Universities can also maximize the value of their patents if they offer purchasers exclusive licenses. Problem is, such licensing may inhibit widespread use of technologies, making it difficult to do further research to build on that patent. The result, according to Columbia University economics professor Richard R. Nelson, is that the economic and social gains of the innovation are less than they would otherwise be. These barriers to the free flow of information between researchers and companies are rising just as private corporations are increasingly turning to a model of open innovation to enhance their IP. More and more companies are making their research results—and even patented ideas—freely available to a wide group of users, most famously IBM Inc., which put 500 of its software patents in the public domain in 2005 as part of its push to become a software services company.

IBM had a good business reason to embrace open innovation—companies using IBM’s ideas are more likely to turn to it for information technology services work—but it isn’t just immediate profits the company is after. IBM and other companies now recognize that the open model offers strong complementarities among different kinds of knowledge, and that encouraging others to follow your lead, and refine and extend your knowledge, makes it more likely ideas will be developed more quickly.

But open innovation can run counter to university revenue maximization. The science journalist Silverman cited on unnamed researcher at Utah, for example, who had developed software for designing medical devices who was then discouraged from making it available as open-source software—to encourage other researchers to extend and refine his ideas—because the university’s technology transfer office wanted to reap its commercial potential.

So what should the government and universities do about these conflicting trends? Most importantly, they’ll have to recognize that openness and the free flow of information in research are critical to promoting innovation. They’ll need to balance their interest in getting financial paybacks with creating an environment where researchers—and companies—can engage in the kind of ongoing dialogue and information sharing that leads to progress.

The government and universities also need to be wary that putting too much emphasis on patents and exclusive licensing, which could work against their broader objectives of harnessing idea creation as a new economic driver. One way to do this is to consider measures to separate a university’s networking function—promoting conversations among academics, industry, and the public—from the intellectual property function, as the University of California-San Diego has done by creating its Connect program apart from the technology transfer office.

One of the hallmarks of San Diego’s rise as a biotech powerhouse has been a strong network of formal and informal cooperation, best typified by UCSD Connect, an outreach program started in the 1980s. UCSD Connect helped organize and foster strong shared social capital, engaging the business community and the research community, and drawing participants from around the world. The program was so successful that entire University of California system now uses it.

The federal government should also put more emphasis on non-exclusive licensing to maximize the social gains from research. If a share of royalties from exclusive licenses had to be returned to the federal government, for example, then universities would have stronger incentives to license most ideas non-exclusively.

Looking at these steps and other ways to ensure that the creation of intellectual property at universities using federal dollars results in the best science and the most effective innovation can help test the efficacy of technology transfer programs in boosting broad-based economic growth. If done right, these efforts may lead to new technology transfer models that could help the United States further refine they way we finance science, technology and innovation in the 21^st century

Joseph Cortright is Vice President of Impresa, a Portland-based consulting firm that specializes in community- and regional-based innovation.

References

Blumenstyk, G. “Colleges Seek a Record Number of Patents,” Chronicle of Higher Education (2004) 51: A27. Available at: http://chronicle.com/weekly/v51/i15/15a02701.htm

IBM:  500 Patents: http://www.ibm.com/ibm/licensing/patents/pledgedpatents.pdf

Lemley, M.A., “Are Universities Patent Trolls?” Palo Alto, CA, Stanford University (2006): 20. Available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=980776

Monastersky, R. “New York U. to Receive $650-Million in Sale of Future Rights to Lucrative Drug,” Chronice of Higher Education (2007). Available at: http://chronicle.com/weekly/v53/i37/37a02401.htm

Nelson, R.R., Innovation, Institutions and Economic Growth, Cambridge, Harvard University Press (2005).

Silverman, E., “The Trouble with Tech Transfer,” The Scientist (2007), 21: 40.

Natural laws, once discovered, have been successfully and profitably applied in patented applications to new and useful products and processes. No one would have considered patenting the law of gravity, nor would any patent on gravity serve the purposes of the Patent Act: to encourage innovation in the useful arts. It would, in fact, impede innovation. No one employing the law of gravity in any new device could produce and market their invention without paying whatever fee the patent-holder demands. Similarly, no one would consider patenting hydrogen, or plutonium, nor any element on the periodic table. Yet, parts of nature have now been patented in record numbers. Unmodified genes have been granted patents, and this impedes science. Since the mid 1990s, unmodified gene sequences have been granted patents. Thus, the company that owns the patent for the test for BRCA1 and BRCA2 (related to breast cancer) owns not only the process for detection of the gene (which is inventive and should be patentable), but also the sequence of amino acids in the gene itself. Miami Children’s Hospital owns the patent on the monogenic disease called Canavan’s. These are but two of the more than 8,000 existing gene patents.

Even though the Patent and Trademark Office now requires more “stringent” declared uses for gene patents, the uses need not be truly inventive. All genes have some “use,” but the use was invented by nature, not by man. Genes in their unmodified forms code for proteins, but this is not a “use” in the sense demanded by a patent since nature is non-teleological. That is, claiming a philosophical purpose for a gene only make sense within the framework of Intelligent Design.

Intellectual property laws are bargains between inventors, authors, and the public. We grant to authors and inventors valuable monopolies, limited in time and scope, in the hopes that this will encourage new inventions and art, and benefit us all. When the monopoly expires, the full knowledge that was once monopolized moves back to the public domain. The trick to any bargain, however, is balancing the interests of the bargaining parties, and at some point, a bargain may become “unconscionable” when one party’s benefit far exceeds the perceived benefit to the other party. In contract law, such bargains can be invalidated. In the case of gene patents, the bargain not only contradicts the purposes of patent law, but it is unconscionable.

Patenting unmodified genes rewards discovery, not invention. Would we allow a patent on plutonium? It must be isolated through complex processes (which might, being inventive, be patentable) but patenting plutonium would be as ridiculous as patenting hydrogen or any other element of nature Not only does it contradict a long history of not patenting laws of nature, but it impedes both science and invention. Basic science requires openness. It is the original open-source enterprise. Hypotheses can only be tested if results are published, and scientific progress depends upon rapid and thorough exchange of experimental results and public testing of hypotheses. Patents impede this process, because between filing and granting of a patent, information in the patent remains secret. Furthermore, if granted, patents on unmodified genes complicate the process of discovery for other investigators, requiring patent searches, payments of license fees, or turning away from research on parts of the genome that are patented.

We would not tolerate a patent on any other element or part of nature that is unmodified, non-inventive, and fundamental to basic science. Although Einstein worked in a patent office, he never applied for a patent on the theory of relativity. It wasn’t his invention, after all. Nor are the unmodified genes for which countless patents have already been granted the inventions of the patent holders, although we should be grateful for their discoveries, and some might make useful, patentable inventions based upon these discoveries. It is time to prohibit the process of patenting unmodified genes, and to invalidate, either by legislation or judicial action, all claims to unmodified genes. HR 977, the Genomic Research and Accessibility Act first introduced in 1997 by Rep Xavier Becerra (D-CA) to ban the practice of gene patenting, languishes still in committee, but it’s time to renew this debate. Science demands it.

David Koepsell is the author of Who Owns You: The Corporate Gold Rush to Patent Your Genes (Wiley-Blackwell 2009). He has a law degree and a PhD in philosophy from the University of Buffalo, and teaches Ethics and Technology at the Delft University of Technology in the Netherlands.

Science Insider: NIH details are sketchy, but include increases; NSF would see 8.5 percent bump; more for scientific facilities though DOE’s Office of Science; earth science research funding and Orion money for NASA; 37.5 percent increase for EPA.

The Intersection and Yale e360: spending initiatives assume passage of cap and trade legislation, a significant political maneuver.

The Washington Post has a useful comparison graphic (article) showing the 2007-2008 budget and the 2009-2010 with stimulus funds side-by-side for several agencies and departments.

Also notable: the budget outline includes $1.3 billion for NOAA “weather satellites and climate sensors”; $50 million to support creation of regional innovation clusters; and says that the Patent and Trademark Office will be granted full access to its fee collections, a problem because Congress has previously dipped into the funds, which are the source of operating funds for the overburdened office.

As the Science Insider reporters point out, the format of the release as a pdf is “decidedly old-school style for the digitally minded Obama Administration.” Let’s be honest: this information needs to be available in a fully machine-readable format. They could take some cues from the NYT’s unveiling this week of its API.

Image: flickr.com/afagen

Patents are issued in the United States by the U.S. Patent and Trademark Office, a part of the Commerce Department, and by similar offices in other countries around the world. They assure inventors a period of time, generally 20 years, to exclude others from using their invention unless those others pay a royalty or work out another arrangement.

Investors are more likely to put capital into new work and novel ideas—and so stimulate the inventive process and the economy—if there is some assurance that others will not be able to freely profit from that work and ingenuity. At the same time, patents foster innovation by those who have been excluded from the initial invention. That’s because inventors, in return for their assurance of exclusivity, must provide a full explication of their creation. That provides a publicly accessible knowledge platform upon which others can make improvements.

To quote the Supreme Court, a patent may be granted for “anything under the sun that is made by the hand of man,” provided that the invention fulfills the three basic requirements of being novel, useful, and non-obvious. Among the immense variety of inventions that have been patented are new materials or devices; methods for making those materials or devices; novel life forms created through the manipulation DNA; mathematical algorithms used to analyze data, organize information, or predict human behavior.

Problems With the Current System

America’s scientific and engineering enterprises are proven engines of innovation and long-term economic growth. The current economic downturn and the prospect of a long and deep U.S. recession demand a reinvigoration of that sector. But private-sector investment in science and technology—and the jobs that can come from those investments—will be limited if the patent system is not working well.

It has been 50 years since Congress made substantive updates to patent law, and more than 30 years since the Patent Office, referred to as the PTO, thoroughly updated its rules governing the examination of patent applications. Meanwhile, inventions are being created at an ever increasing pace and have grown increasingly complex. As a result, the patent system has become bogged down. Among the major problems today:

Backlog: The PTO has a backlog of about 1 million patent applications, and it takes, on average, almost 33 months for a patent application to get approved or rejected. For fast-moving technologies in sectors like communications, that time is 44 months. The resulting uncertainty about which inventions will ultimately be protected and which will not inhibits innovation and investment in new products, since those new products risk eventually being found to infringe on a patent the PTO eventually issues for an older invention.

Patent Quality: Patent examiners are working under old rules and with outdated information technology systems that greatly limit the time and resources they have to review applications. This workload, along with salaries that are not competitive with private-sector jobs requiring similar skills, drives examiners away after an average of three years, the amount of time it takes to become a proficient examiner. These and other administrative and budgetary problems within the PTO have led to a widely perceived decline in the quality of the patents allowed by the office. Adding to the patent-quality problem are overreaching patent applicants who seek to take advantage of the strained system by claiming a larger array of uses for their invention than they have actually proven. That in turn triggers more challenges, including expensive and time-consuming court cases, which inject even more uncertainty into the patent landscape while they get resolved.

Patent “Trolls”: The patent system was created by the nation’s founding fathers not so much to protect individual ownership rights but to foster investment and technological advancement. Some individuals and companies, however, have opted to use the system for a different purpose: They acquire the rights to certain inventions that are crucial for the proper operation of other, larger inventions,, then essentially hold that intellectual property for ransom to be paid by those who need it. These so-called trolls typically do not make any product and, rather than inspiring innovation, tend to have a chilling effect. For a full discussion of the troll issue and how to resolve it, see Daniel P. McCurdy’s article, “Patent Trolls Erode the Foundation of the U.S. Patent System.”

How to Fix the System

The first step is for President-elect Obama to select a PTO director with great organizational skills who is committed to instituting reforms, including changes that would direct greater resources to examiners; increase transparency and communication with applicants; and make fuller use of modern capabilities to share workloads internationally.

Some needed changes can only be accomplished with legislation. Congress could not reach consensus on patent reform in 2008 and will try again in 2009. Among the elements that the Center for American Progress believes are important to address are the formulas by which damages are awarded in patent infringement suits; the rules that govern applicants’ responsibility to tell the patent office everything they know about previous inventions similar to their own; and the need to harmonize certain aspects of the U.S. system with others around the world. For a full discussion of CAP’s recommendations, see Rick Weiss’s article, “Tackling the Challenge of Patent Reform.” Some specifics include:

Budget Control: PTO supports itself entirely through fees collected for patent applications, but Congress has diverted hundreds of millions of dollars away from the office for other government expenses. The office must have more control over its budget and expenses in order to upgrade information technology and make other internal improvements.

Hire and Retain the Best Staff: Better control over its own budget would allow PTO to pay examiners more and reduce their burdensome workload. Some 70 percent of examiners recently told the Government Accountability Office that they had worked unpaid overtime in the past year to meet the extraordinary goals set for reviewing applications. At the same time, the metrics of examiner success must be updated to ensure quality.

Improve Communication with Stakeholders: PTO should seek from stakeholders early and extensive input on rules packages, and provide public access to economic data and guidance on important court decisions, among other reforms.

Improve Information Available to Examiners: The first priority is an upgrade for the office’s information systems. PTO should also avail itself of third-party experts, like those who have participated in experimental systems that allow outsiders to comment on applications and provide information to examiners.

Reduce the Time It Takes to Secure a Patent: The above reforms can all help speed the process and reduce the current backlog, but other measures can further reduce the time between filing and the awarding (or rejection) of a patent. Worksharing among international patent authorities could reduce the enormous redundancies that now occur as multiple offices around the world review the same patent applications in their respective countries. Also, allowing applicants with multiple patents under review to rank their applications in order of importance would also let examiners prioritize work. For more recommendations on how to improve the efficiency of the PTO, see the article by Gerald J. Mossinghoff and Stephen G. Kunin, “Improving the Effectiveness of the U.S. Patent and Trademark Office.” For an in-depth discussion of the international patent system, see Bruce A. Lehman’s article, “Global Patent Protection.”

First to File: The United States is the only country in the world that operates under a “first-to-invent” system. This rewards a person who, after another has filed a patent claim, provides evidence for having created that invention earlier. Although the current U.S. system has some advantages, harmonization with the rest of the world—along with other reforms that would lessen the impact of such a change—would improve the predictability of the system and reduce controversy around patents filed elsewhere around the world.

Reforms for Innovators: Patent applicants have responsibilities for making the system work better as well. Sobered by the economic challenges now facing the nation, cognizant of the tolls imposed by deficient-quality patents, and perhaps encouraged by the clarification of PTO guidelines we hope soon to see, patent applicants can and should do their share by recommitting themselves to the highest and fairest standards as they craft their claims and defend their intellectual property.

Courts: Finally, the courts will continue to weigh in on important issues of patent law. It is to be hoped that they will tread fairly but assertively into the legal frontier that remains unaddressed by the PTO and the Congress.

To learn more, read the reports from the Center for American Progress/Science Progress task force on patent reform:

Tackling the Challenge of Patent Reform (.pdf)
Recommendations for the Obama administration and Congress
By Rick Weiss

Improving the Effectiveness of the U.S. Patent and Trademark Office (.pdf)
By Gerald J. Mossinghoff and Stephen G. Kunin

Patent Trolls Erode the Foundations of the U.S. Patent System (.pdf)
By Daniel P. McCurdy

Global Patent Protection (.pdf)
The International Patent System and the New Administration
By Bruce A. Lehman

Climbing out of the deep economic recession the United States is facing will require multiple remedies, but there is no doubt that ongoing innovation will be critical to restoring the long-term economic health and prosperity of our country. Innovation is so key to our nation’s prosperity that our founders enshrined the general principle of intellectual property as an essential element of economic development in Article 1, Section 8 of our Constitution. The basis for this constitutional provision establishing a patent system was not the protection of individual rights to inventions per se, but rather the promotion of economic development in a young and ambitious country.

As originally conceived, the patent system would catalyze economic development by providing individuals (and those investing in the inventive process) the prospect of a return on that investment should the invention achieve market success, while ensuring the public had the ability to learn from the invention to enable follow-on research and development. The fundamental policy intent of the patent system still holds true nearly 220 years later.

Patents are created for a single purpose—as an incentive to encourage innovation and, through such innovation, to increase the general economic well-being and prosperity of the nation. In recent years, however, much in the practice of intellectual property management has changed in ways that are inconsistent with the public policy objectives that were the foundation for the patent system. Left unchecked, some of these new approaches threaten to undermine this patent system and our prospects for renewed economic growth.

By far, the most significant and destabilizing change in the patent environment since 2003 has been the dramatic increase in the growth, financing, and patent acquisitions of so called non-practicing entities. NPEs in legal parlance—more commonly referred to as “patent trolls”—derive or plan to derive all or most of their revenue from the enforcement of patents. Patent trolls are clearly distinguishable from major research institutions, universities, and businesses that derive their revenue, respectively, from funded research, tuition and grants, and the sale of products and services. Some of the largest of these NPEs raise large funds with which to purchase the patents they seek to enforce—without any plans to turn those patents into marketable products or services. Instead, they then use these funds to enable—through direct or veiled threats of infringement—their pursuit of royalties from successful businesses.

Many factors have come together to foster this phenomenon. These include the cheap cost of capital until the financial crisis of mid-2008, an openness to new investment vehicles among institutional investors, and a large number of patents available for sale. Many of these patents are of questionable validity at the individual level, but in the aggregate become more valuable because of the cost to a potential licensee of separating the rare grains of wheat from the chaff.

The jump in patent troll-related lawsuits is truly alarming. From October 1, 1994 through September 30, 2002, 527 patent lawsuits were filed by or against the 219 NPEs currently identified and tracked by PatentFreedom. This represented 2.7 percent of patent lawsuits filed in the United States during that 8-year period. From October 1, 2003 through September 30, 2007, there were 1,210 lawsuits filed by or against these entities, representing approximately 8.4 percent of all patent lawsuits filed in that period, and exceeding 10 percent in 2006 and 2007 (see Figure 1).

Over the past year—from October 1, 2007 through September 30, 2008—389 litigations were filed involving the PatentFreedom-tracked NPEs, compared with 297 in the prior year. Today, 219 patent trolls boast more than 800 subsidiaries or perhaps as many as 1,500 if all of the subsidiaries of the largest NPE, Intellectual Ventures, were known. Combined, all of these subsidiaries have more than 12,500 active and pending U.S. patents in their holdings. And in all likelihood, these numbers dramatically understate the magnitude of the problem.

For instance, these figures include only 3,167 U.S. patents and applications held by Intellectual Ventures, a mere fraction of the more than 23,000 worldwide patent assets they claim to own, most procured with a portion of the $5 billion in private capital they have raised to date. Intellectual Ventures is unique by virtue of its capital structure, its collection of signatory operating companies, its public relations capabilities, its leadership, and its patent portfolio. But it shares a probable requirement with other NPEs—it will likely have to follow the path of litigation.

The reason: Whether a large private equity fund like Intellectual Ventures or a more focused patent aggregator with less available capital, investors in patent trolls expect a return on their investment. Persuading a company to pay for a license to patents that the potential licensor may feel are invalid or not infringed is a difficult task. For this reason, as the amount of patent royalties requested increases, the chance that litigation will be required to untangle the debate over validity and infringement also increases. When NPE funds are very large, the returns they require to satisfy investors are commensurately large. Thus, it is likely that notwithstanding its stated desire to avoid litigation, Intellectual Ventures will ultimately have to follow the litigation path used by other NPE funds.

But even with litigation, profits, will be dependent on legal findings of validity of the patents asserted, then infringement of the patents, and then substantial damages. There exists the potential, however, that damages could be seriously limited by new laws or jurisprudence affecting damages calculations, such as those reflected in the on-going “proportional damages” debate. Finally all of these findings would have to stand up to the scrutiny of appeal.

The losers in this process will be businesses, consumers, and an overburdened court system, all made possible by the collection of funds from investors that enable patent trolls to amass new inventions that would spur national economic growth under the assumed but incorrect premise that patents are individual rights with discrete monetary value rather than a government tool of economic development enabled by the conveyance of certain rights to inventors and those that invested in them.

The Patent Troll Realm

Beyond Intellectual Ventures, the remaining 218 PatentFreedom-tracked NPEs have varied backgrounds. Some, like Acacia Technologies, Alliacense Ltd., and Rembrandt Technologies, are primarily patent enforcement entities that are highly selective in their purchases. They have relatively small and focused patent portfolios. They rely substantially on litigation to demonstrate their commitment to enforce. Acacia, for example, since its inception in January, 1993 through August, 2008 has itself or through companies it has acquired been a plaintiff in 280 patent lawsuits (and a plaintiff or defendant in 308 lawsuits) seeking to enforce at least 121 of the 274 issued patents identified to date by PatentFreedom.

Moreover, those NPEs that are heavily litigation-focused have substantially increased the scope and pace of litigation. This increase takes two forms. The first is the absolute number of litigations filed (see Figure 2) and the second—frequently overlooked—is the number of defendants named in each lawsuit, which if properly reflected, substantially increases the scope and scale of NPE litigation. As an indication of this increase, see Figure 3.

Other NPEs are not so litigious. Firms such as 1st Technology, ArrivalStar, Cygnus Telecommunications Technology LLC, Freedom Wireless, Inc, Millennium LP, and Rates Technology derive or plan to derive the majority of their revenues from patent enforcement, but rather than buying patents created by others they primarily or exclusively license patents created by their employees or owners. A third category involves individual inventors who have chosen to enforce their patents as the primary means to derive revenue from them.

The patent litigation practices of these last two groups of patent trolls at first glance may not seem to be as egregious. After all, they are at least seeking to profit from their own ideas, rather than the ideas of others. Yet they are clearly akin to Intellectual Ventures and other patent aggregators in that they are using a patent system designed to promote the economic development of a nation through the creation of new products and services to, alternatively extract profits from new products and services developed by other companies, potentially harming both consumers and competition.

All patent trolls share a common attribute: the primary source of their revenue is extracting royalties from companies they believe are using inventions claimed in patents they own. And because these NPEs do not derive any significant portion of their revenue from designing, developing, manufacturing, or selling products, they are essentially immune to counter-assertion claims by the companies from which they seek royalties. This profound disparity in NPE vs. product company assertions, as opposed to product company vs. product company assertions, has destabilized the patent system.

The destabilizing impact of patent trolls

Because these entities and individuals do not produce products, there is some question as to how their enforcement activities contribute to the “first principle” underlying the creation of the patent system—to encourage economic growth made possible by encouraging innovative new technologies that would foster the introduction of valuable new products and services to the market. The creation of an idea is frequently the least costly and least time-consuming aspect of product success.

Development budgets vastly exceed research budgets in research and development-intensive companies. Much more time, and substantially more investment, is required to commercialize a product or service embodying an invention than to create the invention in the first place. When I was director of business development for IBM Research in the early- to mid-1990s, for example, the global development budget exceeded the global research budget by about 20 times. R&D spending and development spending has fallen since then, but the proportional differences remain similar today.

Even if this were not the case, the tremendous financial and tactical advantages NPEs have over their business targets are huge. When one business asserts patents against another, both have the opportunity to reduce or eliminate the assertion by counter-asserting patents of their own against key products of the aggressor. In addition, both have the opportunity—if successful in proving infringement of a valid patent—to obtain an injunction that could severely damage the other’s business operations. Neither of these defenses is available to a business when confronted with a patent assertion from a patent troll.

In fact, by choosing to not pursue products or services using their invention (or attempting product sales and failing) an NPE is actually rewarded with these tactical advantages. This can actually serve to diminish competition, and increase prices to consumers, by rewarding entities to not put products and services in the market but rather taxing those that do.

To compound the disadvantage faced by businesses, many NPEs operate in a stealth mode, hiding behind tens or even hundreds of subsidiaries, masking their patent holdings, their finances, and their activities so that they can sue for patent infringement only after the market has locked into using the covered technology. The many NPEs that purchase the patents they enforce can develop highly tailored portfolios focused on the most successful products of their intended licensees, with acquisitions sufficiently deep and broad to achieve an overwhelming assault.

This is in stark contrast to their targets, most of which are public companies that must reveal, by regulatory mandate, virtually everything about themselves, their products, their strategies, and their finances. Left unchecked, these tactics will enable NPEs to further enhance the vast amount of capital they have already obtained from pension funds, hedge funds, endowments, and other sources of alternative investments, including even other businesses.

Acacia for example, has a wide array of institutional investors, including fund managers Fidelity Management & Research, Vanguard Group, Oppenheimer Group, and Barclays Global Investors, hedge fund Kingdon Capital, private equity firms Apex Capital and Pequot Capital, and the giant U.S. teachers pension fund TIAA-CREF. Or consider Germany’s IPCom GmbH which reportedly is funded by one of the world’s largest hedge funds, Fortress Investments.

Armed with private capital, patent trolls are able to purchase large patent portfolios with absolutely no intention of producing meaningful revenues from products or services. Their extraction of royalties from product companies either diverts funds from the research and development needed to fuel continuing innovation that will drive economic development, or raises prices paid by consumers. And to what end?

Patent trolls’ hollow market arguments don’t ring true

Some NPEs argue that their presence provides needed liquidity to inventors that may otherwise never obtain any return on their investment, spurring those inventors to further innovation. But that argument is hardly credible when most patent trolls offer such trivial rewards to the inventor. Indeed, the principal exception—General Patent Corporation, which has a long history of supplying enforcement services to small- and medium-sized inventors, with a substantial portion of the royalties provided to the inventor—proves the point. More frequently, NPEs with hundreds of millions or billions of dollars in capital seek out patents held by others and pay the actual inventors a small fraction of the money they seek to obtain in subsequent enforcement activities. It is hard to imagine that the prospect of netting so small an amount will, on its own, stimulate further innovation.

In fact, patent trolls could alter their behavior if they truly believed their objective was to be an advocate and defender of the small inventor. They could:

• Attempt to enforce only those patents they could demonstrate were clearly valid and infringed by fully applying Rule 11 of the Federal Rules of Civil Procedure, which prescribes sanctions for the filing of a frivolous lawsuit
• Avoid predatory massing of patents through acquisition that is intended to overwhelm a potential licensee
• Practice full disclosure and transparency in their funding, patent holdings, and practices
• Commit to the return of the majority of royalties to the original investor or inventor who created the technology.

Even with these changes, patent trolls would still remain a dangerous threat with significant advantages over businesses, but the changes would help to level the playing field. These commitments, however, will be difficult for most NPEs to make. Most patent trolls have already made promises to their investors that they will buy low, sell high, and keep the vast majority of the proceeds. The intended winner is not the inventor, but the NPE.

That’s why the United States (indeed, the world community) needs a fully functional and transparent Patent Exchange, where every seller could advertise the availability of their patent to every potential buyer in a public forum so that companies potentially threatened by a patent at least would have the opportunity to purchase the asset. A Patent Exchange would help to establish greater competition for the asset at whatever stage the patents were offered for sale, thereby enhancing the reward to the innovator. And it would enable patent-acquisition entities, such as Allied Security Trust, RPX, and Open Invention Network—all of which were created in whole or part to combat NPEs and those wishing to stifle innovation—to participate in patent acquisitions as an alternative to inventors settling for offers from patent trolls that have not been thoroughly exercised in a competitive marketplace.

But not all businesses boast the financial firepower to join patent-acquisition entities or to individually ward off NPE-induced patent litigation by striking royalty deals. Smaller or less successful competitors cannot afford to pay the huge royalties asked by a never-ending stream of litigious patent trolls. Therefore, these smaller players, who can provide meaningful innovation and apply critical competitive pressures on industry leaders, face patent uncertainties (as do their potential customers) that are avoided by the larger, licensed market leaders, thereby potentially solidifying the market leaders’ positions.

In short, patent trolls may be a compelling (yet still unproven) business model, but they do nothing to contribute to innovation or the nation’s economic prosperity. In fact, they severely complicate the ability of businesses large and small to produce products and services that produce jobs and rebuild our nation’s (and workers’) economic health. Indeed, the unpredictability that any product can be made, used, or sold without the very real risk of a devastating onslaught of patent attacks results in a marketplace in which innovation and competition are stymied. This is no way for our patent system to work as the United States tries to innovate its way out of today’s deep economic recession.

Addressing the trouble with patent trolls

Fortunately, some meaningful actions have already been taken by the Supreme Court and the Court of Appeals for the Federal Circuit to deal with issues that have exacerbated the NPE problem. First, the eBay decision by U.S. Supreme Court in 2006 removed the so-called “automatic injunction” remedy for plaintiffs in a patent dispute, replacing it with the established “four factor” test to determine whether an injunction should be granted. This test will be difficult for an NPE to pass. Second, the MedImmune decision by the Supreme Court in 2007 permits a licensee to challenge the validity of a patent while still paying royalties. This removed the prior requirement that a licensee must first cease royalty payments, thereby triggering a breach and termination of the license and exposing itself to willful infringement and treble damages.

Third, the Federal Circuit in the Sandisk decision in 2007 dramatically lowered the threshold required for a company approached by a patent holder to seek a declaratory judgment from a court selected by the threatened party. Under Sandisk, the offer of a license, coupled with the rejection of the offer by the intended licensee, constitutes sufficient controversy to sustain a declaratory judgment action. That said, many operating companies are reluctant to initiate a lawsuit that, on average, will cost $5 million prior to its conclusion.

Fourth, the KSR decision by the U.S. Supreme Court in 2007 initiated a vital reassessment of the obviousness standard. A patentable invention must pass three key tests: it must be novel (new, not previously known); it must be useful; and it must not be obvious. Over the past decade in particular, there has been mounting criticism with respect to the quality and validity of patents issued by the U.S. Patent and Trademark Office. In particular, many observers charge that issued patents fail to pass the novelty or obviousness tests and are therefore invalid. The KSR decision held that when dealing with a patent that covers improvements over the prior art (as most do), a court must now ask whether the improvements are more than the predictable use of prior art elements according to their established functions.

The final two notable cases of importance to better managing the threat of NPEs are the Quanta Computer decision this year by the U.S. Supreme Court and the Bilski decision by the Federal Court of Appeals, also earlier this year. Quanta clarifies and strengthens the principle of “patent exhaustion,” holding that a license to make a product “exhausts” the ability of the licensor to then claim infringement by the products that were actually produced. This ruling will materially limit some of the adventurous practices of NPEs with respect to chasing the entire value chain of a product, from manufacturer through to the consumer. And the Bilski decision significantly curtailed the patentability of business methods (a favorite category of patents being amassed by NPEs) that do not rely on an apparatus or do not transform a material to a different state or thing (the so-called “machine-or-transformation” test).

More can be done

The courts, however, have yet to deal with at least three other important issues fueling the attraction of the patent troll business model to institutional investors and financial speculators. Two of the issues—awarding of damages that are reflective only of the economic contribution of an invention to a product and the selection by patent trolls of the court to adjudicate their lawsuits—were highly debated and considered by Congress in the Patent Reform Act, which failed passage in 2008. Let’s consider each in turn.

The importance of “proportional damages” revolves around the effort by patent trolls and also operating companies seeking to enforce their own patents—particularly in the high-tech industry—to claim damages against the total price of a finished product, or the totality of revenue for a service, regardless of the economic contribution of the infringing element of that product to the product’s total value. So, if a $5 integrated mouse is contained in a $2,000 laptop computer, the licensor would claim that the mouse was essential to the total value of the computer, and seek a multiple percentage royalty against each $2,000 laptop that contained the allegedly infringing mouse, as opposed to a multiple percentage royalty of the $5 mouse.

Congress failed to resolve this damages debate because of differing views between major industries. Broadly, the battle lines pitted primarily some high-tech companies against pharmaceutical companies, which expressed concerns that limiting damages only to the economic contribution of the invention per se would weaken their ability to deter competitors seeking to undermine their patent-protected products. Those opposing the language related to proportional damages, in addition to the pharmaceutical industry, included certain high-tech companies and non-practicing entities.

With respect to the “venue” debate, the importance of the selection by plaintiffs of the court in which they choose to file a patent action involves the ability of plaintiffs to “shop” for the most favorable forum to file infringement actions. Basically, patent trolls and businesses trying to enforce their own patents seek out jurisdictions that have demonstrated by their results that they are friendly and generous toward patent holders, and relatively fast. More money as fast as possible is the motivation.

There are few restrictions that preclude a plaintiff from selecting a forum of their choice, even if neither the plaintiff nor defendant has reasonable nexus to the chosen venue. Entities that are generally the defendant in patent litigations (which tend to be businesses, and particularly businesses confronted by NPEs as well as other businesses) were generally supportive of reforms that would limit venue shopping, whereas plaintiffs were generally opposed to such reforms. Figure 4 depicts the jurisdictions of choice.

It would seem reasonable that Congress or the courts will ultimately limit this forum-shopping ability as this wasn’t as germane to the failure of patent reform in Congress as was the conflict over the apportionment of damages. All that’s required is that the jurisdiction in which the case is heard must be reasonably tied to the dispute at hand. The recent 5th Circuit decision in In re Volkswagen AG in October 2008, which ordered Judge Ward in the Eastern District of Texas to transfer a case to Dallas where the events surrounding the case occurred, appears to signal the federal court’s willingness to tackle these difficult issues.

A final step that should to be taken is for Congress to adopt a law that requires unsuccessful patent plaintiffs to bear the cost of their adventurous litigation in court. Today, particularly plaintiffs that use contingent law firms (as do many NPEs) incur minimal risks when filing an infringement suit. Only two things can happen—the target settles and pays money to the plaintiff, or the target refuses to settle, goes to trial, and the plaintiff wins or loses. But even if the plaintiff loses, the only cost it has incurred is its legal fees, and therefore the NPE only absorbs out-of-pocket expenses.

Adopting a system where plaintiffs or a successful defendant in a patent-related declaratory judgment action would have to pay the target’s costs if the case fails would provide a substantial brake on adventurous litigation. Such a law would force all patent holders—patent trolls and businesses alike—to thoroughly investigate infringement actions prior to approaching a potential licensee with the threat of a lawsuit. It would dramatically curtail the amount of contingent litigation pursuing weak claims of infringement, a mainstay of most patent trolls, and yet it would permit the vigorous enforcement of strong patent rights.

If there were only one action that could be taken, then I believe a law to oblige unsuccessful patent enforcers to bear the costs of their lawsuits would be by far the most important and useful, yet likely the most difficult to achieve, since those that make a living from this practice will lobby extremely hard to avoid enactment of the required legislation.

Conclusion

Patent trolls amass fortunes by using purchased patents to reap profits from those who commercialize innovation, raising costs to consumers, and retarding innovation. These effects hardly promote the public policy on which the patent system was created. But for the government’s grant of a patent, the sole means of exploiting an invention is to put it in a product and offer it for sale. Fostering the commercialization that spurs economic growth must certainly be at least as important as fostering invention. Patent trolls damage invention and commercialization by exploiting their unfair advantage in the market. They increase barriers to entry for new companies that might otherwise lower prices through competition, while at the same time raising the cost to consumers for the use of the patents that NPEs purchase from others for the primary, if not sole, purpose of pursuing profit.

Fortunately, the courts have already begun to intervene to address this dangerous phenomenon. The Federal Trade Commission’s 2003 report on intellectual property, coupled with other studies, such as the National Academies’ A Patent System for the 21st Century, subsequent studies by academia, industry, and other stakeholders, and numerous congressional hearings, have individually and collectively played a significant role in stimulating the courts to act.

The FTC, the courts, Congress, the U.S. Patent and Trademark Office, and patent applicants and owners can each take further measures to address this aggressive threat. Our nation’s prosperity and security will be the beneficiary of prompt and vigorous action.

Daniel P. McCurdy is chief executive officer of Allied Security Trust and chairman of PatentFreedom.

Correction: An earlier version of this article indicated that Rembrandt Technology got its start originally with funding from technology services and trading company Susquehanna International Group, which is not the case.

SOURCE: University of Wisconsin-Madison

A colony of undifferentiated human embryonic stem cells.

At the end of last week, Reuters reported that the European Patent Office issued its final ruling rejecting a patent application for the stem cell technology based on the work of James Thomson of the University of Wisconsin. Filed in 1995 by the Wisconsin Alumni Research Foundation, the patent, according to the EPO release “describes a method for obtaining embryonic stem cell cultures from primates, including humans.”

The release also indicates that the decision was based on moral prescriptions within the European Patent Convention, as well as explicit proscriptions against patents on commercial use of human embryos:

The EPC does not allow patenting inventions whose commercial exploitation would be contrary to public order (“ordre public”) or morality. Furthermore, the Convention prohibits patenting on uses of human embryos for industrial or commercial purposes.

The Scientist reports that the ruling comes as a relief to European researchers and presents a potential stumbling block for biotech companies set to capitalize on commercial stem cell technologies.

As of March 2008, the U.S. Patent and Trademark Office had issued final decisions upholding two out of three patents on the technology in the United States, though WARF eased licensing protocols for the patents after the challenges.

Rep. Bill Foster (D-IL) knows that scientific research, along with science and math education, are long-term investments in our future. A physicist and businessman, Foster made his way from the 14th district of Illinois to the House of Representatives in March, after a special election to replace former Speaker of the House Dennis Hastert. He joined Rush Holt (D-NJ) and Vernon Ehlers (R-MI), the two other physicists who bring their scientific knowledge to the House. In this video message, Foster outlines what he sees as the three largest challenges facing federal science policy: rational decision making, balancing basic research and commercialization, and ramping up STEM education.

Back in August 2007, the USPTO released new rules limiting the number of claims and continuations, which are used to amend patent claims, allowed on a single patent application. The USPTO argued the rules would help streamline the application process and reduce the growing backlog. The Wall Street Journal Law Blog reports that the new rules were set to go into effect in November 2007, but a lawsuit filed against the new rules by drug maker GlaxoSmithKline and Triantafyllos Tafas, a medical technology entrepreneur, changed all that. The district judge ordered an injunction on the rules, preventing them from going into effect until they were examined.

In his decision (see pdf at Patently-O), Judge James Cacheris ruled that the USPTO does not have the authority to make such changes:

The court finds that the Final Rules are substantive in nature and exceed the scope of the USPTO’s rulemaking authority.

Critics of the new rules cheered the judge’s ruling, arguing they would “water-down” more complex patents. Biotech companies and drug makers felt the rules would pressure them into exposing their drug development strategies too early in the application process. Other companies and their patent attorneys were spared the hassle of rearranging their patent portfolios to follow the new rules.

The USPTO voiced its disappointment with the ruling, releasing a statement in defense of their new rules, believing them to be only procedural in nature. They hinted at a possible appeal.

Challenges are still ahead. The Patent Reform Act of 2007, currently in the Senate, could significantly alter patent system. But for now, some can celebrate.

On January 7th, the Supreme Court upheld Monsanto’s claims against a Mississippi farmer who reused genetically modified soybean seeds, a breech of contract that will end up costing him $350,000 in fines. He originally paid $24,000 for the seeds. This case highlights Monsanto’s efforts to protects it huge investment and hold over the genetically modified seed industry. In his Grist article, Tom Philpott argues that Monsanto has deftly used patent law to take control of the corn and soybean industry, and in the process has quashed an age-old farmer’s right to save seed.

The Stanford Linear Accelerator Center (SLAC) became the latest victim of federal budget cuts to particle physics research. The shutdown of the collider will end the lab’s involvement in an international cooperative researching the difference between matter and antimatter. The Department of Energy chose between axing the Tevatron, a collider at the Fermilab in Illinois, or the SLAC collider.

On the heels of Shinya Yamanaka’s revolutionary technique for creating “induced pluripotent stem cells” (iPS), the Japanese government quickly hiked the budget for iPS research from $2.5 million dollars in 2007 to $20 million for 2008. It also pledged $92 million over 10 years and promised money for the creation of a Yamanaka-headed center dedicated to iPS research. The sudden increase in research funding is unusual in Japan, which models its own science policy around that of the United States.

The Supreme Court heard opening arguments in a case between LG Electronics and Quanta yesterday. The Supreme Court decision could alter a patent holder’s right to control the use of their invention after it has been sold to somebody else. The case involves the terms of use surrounding computer components LG Electronics licensed to Intel, who then went on to sell them to Quanta for use in its notebook computers.

Open-source standards and net neutrality can support and improve global health—especially in developing nations (Global Health Report).

An NIH panel concludes that gene therapy was not the cause of death for a patient receiving experimental treatment for rheumatoid arthritis (The Scientist Blog).

The U.S. Patent Office tests peer review of applications (Cairns Blog).

A McKinsey & Company report concludes that current technology can get the U.S. to the 2030 emissions goals in current proposed legislation, and at manageable costs (Hill Heat).

Google announces it will invest in renewable energy that is cheaper than coal (SciGuy).

“There aren’t good blueprints for how to ‘broaden the impact’ of one’s research and the resources to develop such things are thin.” Excerpts from an interview on science and public discourse with Dr Chris Brodie, associate editor of American Scientist magazine (Terra Sigillata).

This new bacteria could lead to the creation of lifeforms that might play roles in novel medical treatments, such as biofuels generation or the digestion of atmospheric CO2. Or they could lead to lifeforms that could also be used to create deadly biological weapons.

But the AFP quotes Venter’s spokesperson Heather Kowalski as saying, “The Guardian is ahead of themselves on this.” She has also promised that Venter’s Institute will not announce the creation of artificial life until they publish a scientific paper on it. “We have not achieved what some have speculated we have in synthetic life,” she explained. “When we do so there will be a scientific publication and we are likely months away from that.”

Still, in October 2006 Venter did file for a patent on the essential Mycoplasmum laboratorium genome and synthetic “free-living organism.” Whatever the case, science bloggers and academics are already busy examining how Venter’s apparent quest could play out.

Ron Bailey at Reason’s Hit & Run blog has a summation of how artificial life will change the discipline of biology. Nature blogger Philip Ball has a blog post from June about the intellectual property implications of patenting the basic building blocks of synthetic biology, even if they are isolated by researchers. And Arti Rai has an article on possible solutions to this problem in PLoS Biology.

For an international perspective, India’s merinews has a skeptical article from a citizen, which claims that Venter’s proposed creation would not be an artificial life form since it is made from a naturally existing organism with 80 percent of its genes knocked out.

For more on Venter himself, The Guardian has an excerpt from his 400-page autobiography, set to be released on October 18.