This article is published in the journal Nature Biotechnology
Volume 21 Number 9 September 2003
Please see: Nature Biotechnology


Integra v. Merck: A mixed bag for research tool patents

By: Charles Raubicheck, Barry S White, Thomas J Kowalski, Daniel G Brown, Amy Leahy & Pamela Fekete

Although the decision is good news for owners of patents relating to discovery tools, it is too early to predict the full impact of the case.

The recently issued and industry-awaited United States Federal Circuit decision in Integra Lifesciences I, Ltd. v Merck KgA1 is a "mixed bag" for research tool patents: Integra is clearly good news for owners of patents relating to discovery tools, especially screening methods. However, beyond that specific situation, it is too early to predict the full impact of the case. Moreover, the Integra court's damages calculation may ultimately reduce the "but for" value of some research tool patents. Nonetheless, the case is an important step forward for owners of research tool patents, and it is helpful to appreciate the case in its historic context.

The typical first step in drug discovery
Research tool patents-patents that cover technology used to discover drugs and drug candidates-are an important source of revenue for many biotechnology companies and academic research institutions. Biologic research tools are products and processes used in experimental research, such as drug discovery. Examples of research tool patents include patents directed to receptors or other peptides used in screens to identify ligand-binding activity; patents directed to enzymes (such as polymerases and reverse transcriptases); and patents directed to nondiagnostic and nontherapeutic antibodies used in screening assays. Thus, advancement in many fields is centered on research tools, and the use of biologic research tools is typically a first step in the chain of modern drug discovery. Indeed, the Integra court recognized that research tools "often facilitate general research to identify candidate drugs"2. However, the value of research tool patents was uncertain, due both to early court decisions3 and to the scope of the research exemption under US law4.

The balance of patent law:
the research exemption

There are two competing policy interests in patent law: an inventor's interest to have exclusive rights to his or her invention, and the interest of the public to benefit from the progress of knowledge and technology. The US Congress enacted the Hatch-Waxman Act of 1984 to balance these competing interests in the pharmaceutical area. Three principal components of the Act: are patent term extension, Abbreviated New Drug Application (ANDA) filing and a research exemption.
First, the Act provides potential five-year patent term extension for new drugs approved by the US Food and Drug Administration (FDA; Washington, DC, USA) to compensate for time lost in the FDA-approval process. The second provision, ANDA filing, permits generic drug manufacturers to incorporate the safety and efficacy data from an approved product, saving generic manufacturers from the extensive clinical trial period required for new drugs.
The research exemption from infringement is provided in Section 271(e)(1) of Title 35 of the United States Code, which states, in part, that "[i]t shall not be an act of infringement to make, use, offer to sell, or sell within the United States or import into the United States a patented invention ... solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs or veterinary biological products"5. This was intended to allow potential competitors to enter the market immediately upon expiration of the patent, protecting against an artificial extension of patent monopolies beyond the expiration of the patent, for activities related to obtaining FDA approval. All necessary FDA-approval procedures could be completed before the patent expires, allowing the product to be launched as soon as possible after the expiration of the patent.
Specifically, the Hatch-Waxman Act sought to ensure that a patent did not de facto extend past the expiration of the patent term because a generic competitor also could not enter the market without regulatory approval6. Thus, the Hatch-Waxman Act permitted competitors to conduct experiments in advance of patent expiration, as long as those activities were reasonably related to securing regulatory approval. In addition, without the provisions of the Act, not only would the competitor need to wait until expiration of the patent to conduct experiments for regulatory approval, but the ANDA filing would not be available. The potential experiments needed to obtain regulatory approval would be more extensive, time consuming and expensive than an ANDA filing, further extending the patent monopoly and raising the barrier to market entry.

The uncertain judicial landscape for research tool patents
The first decision in Bayer AG v. Housey Pharmaceuticals, Inc.7 called into question the propriety of reach-through licensing - licensing of technology/intellectual property, typically patent rights, with royalties based on a percentage of sales, where the licensed technology/intellectual property is not incorporated into the end product. An example of this would be a license for a research tool patent with royalties based on sales of a later-discovered drug.
A second decision in Housey8 held that the patentee did not engage in patent misuse by licenses that required the payment of royalties on sales of discovered drugs that occurred after the expiration of the patent because the royalties were for pre-expiration use of invention. Nonetheless, other lower court decisions on the research exemption still called into question the value of research tool patents.
More in particular, US District Courts had been generally leaning towards interpreting the research exemption broadly. Activities directed towards drug discovery seemed as though they would be exempt, vitiating the value of research tool patents.
In Bristol-Myers Squibb Co. v. Rhone-Poulenc Rorer Inc.9, BMS used the Rhone-Poulenc Rorer-patented intermediates in the synthesis of the cancer drug Taxol for the development of closely related compounds to compete with Taxol; the court held that these uses were exempt from infringement under 271(e)(1). The reasoning was that even though each use of the patented intermediates may not have directly yielded information that could be submitted to the FDA, the uses related to preliminary activity that could ultimately facilitate or be useful in generating information that could be submitted to the agency. The Rhone-Poulenc court included activities related to the discovery of drug development candidates; and therefore, adopted a very broad interpretation of the exemption.
Similarly, the court in Amgen, Inc. v. Hoechst Marion Roussel, Inc.10 extended the exemption to preclinical drug discovery activities. In this case, Amgen owned patents covering a genetically engineered form of erythropoietin (EPO) and Hoechst manufactured and used significant quantities of EPO during the development of a competing product. Various infringing activities that were held by the Amgen court to be exempt under 271 (e) (1) included: export of EPO to Japan; purity testing; demonstration of consistency by manufacturing three consecutive batches of EPO; characterization of the product; viral clearance tests in Europe; and plans/preparation for radiolabeling studies on the product. Amgen provided a broad interpretation of the research exemption.
Likewise, in Nexell Therapeutics Inc. v. AmCell Corp.11, the court extended the exemption to preclinical activities. More specifically, AmCell used antibodies patented by Nexell for the development of a magnetic cell separating device, and was planning to seek FDA approval for the use of the device in conjunction with the patented antibodies. Amcell's activities that the court held to be exempt under 271(e)(1) included: sending informational packets and letters to physicians to recruit clinicians to participate in FDA studies to evaluate the safety and effectiveness of the device; maintaining a booth at the American Society of Hematology conference featuring a display of the device and an accompanying statement that it was now ready to accept Investigational Device Exemption clinical protocols; advertising the device in medical journals; soliciting clinicians through its website; and providing the device to FDA-approved clinical investigators for free and providing kits containing the patented antibodies to investigators on a costrecovery basis. The court concluded that activity would only exceed the safe harbor if there was not an objectively reasonable application of the activity towards obtaining FDA approval. Thus, similar to the Amgen and Rhone-Poulenc courts, the Nexell court also extended the exemption to preclinical development activities.
The Rhone-Poulenc, Hoechst Marion Roussel and Nexell cases represented a trend towards a broad interpretation of the research exemption. Such an interpretation as to research tool patents would greatly reduce the value of patents whose sole function was the discovery of new drugs.

The Integra court saves the day?
Under an agreement with Merck, researchers at Scripps Research Institute conducted preclinical tests for the identification and development of potential drug candidates to inhibit angiogenesis. Integra-patented peptides that promote cell adhesion (RGD peptides) were used to test several potential drug candidates, one of which was eventually selected for clinical development. Integra sued Merck for infringement of patents covering the RGD peptides. The specific issue in this case was whether the preclinical research to identify the best drug candidate to subject to future clinical testing under the FDA process was exempt from liability for infringement under 271(e)(1) (ref. 12).
According to the Integra court, the safe harbor provision of 271(e)(1) did not encompass the preclinical identification and development of a potential drug candidate: "The focus of the entire exemption is the provision of information to the FDA"13. Section 271 (e)(1)'s exemption of "reasonably related" activity is activity that"would contribute relatively directly" to information the FDA would consider in approving a drug; the phrase "reasonably related" was held to not embrace the development of new drugs because those new products will also need FDA approval 14.
In so holding, the court breathed life into research tool patents by stating that "Extending 271 (e) (1) to embrace new drug development activities would ... not confine the scope of 271 (e)(1) to de minimis encroachment on the rights of the patentee. For example, expansion of 271(e)(1) to include [the preclinical research to identify the best drug candidate to subject to future drug testing] would effectively vitiate the exclusive rights of patentees owning biotechnology tool patents. ... Thus, exaggerating 271(e)(1) out of context would swallow the whole benefit of the Patent Act for some categories of biotechnological inventions"15. And the court recognized that "patented tools often facilitate general research to identify candidate drugs"16.
Section 271(e)(1) was clarified by the Integra court as not globally embracing all experimental activity that at some point, however attenuated, may lead to an FDA approval process: "the safe harbor does not reach any exploratory research that may rationally form a predicate for future FDA clinical tests"17. Therefore, the research conducted pursuant to the Scripps-Merck agreement was not exempt from liability for patent infringement18.
However, the Integra court left several open questions. The court did not enunciate specifics as to the type of experimentation that "would contribute relatively directly" to information that the FDA would consider in approving a drugl9.
Also, although the court looked to the role of the Hatch-Waxman Act in facilitating expedited approval of generic drugs, and stated that the purpose of 271(e)(1) was to create a safe harbor for the pre-patent-expiration tests necessary to facilitate the immediate entry of generic drugs into the market upon drug patent expiration20, the court did not expressly limit the scope of the exemption to tests necessary for approval of a generic drug.
Thus, although the court did not expressly limit the exemption of downstream clinical testing for FDA approval to that required for generic drug approval, it also did not expressly determine at what point the safe harbor begins to apply beyond the preclinical identification of a potential drug candidate.
More importantly, the Integra case presents a mixed blessing as to research tool patents in how the court addressed the question of damages. The Integra court vacated and remanded a $15 million damage award by the jury in the district court action2l because the jury had failed to consider the fact that at the time of the infringement, it was uncertain whether a useful drug would ever be developed using the technology. The Federal Circuit reasoned that the damages analysis was flawed because the jury failed to employ a reasonable royalty analysis using a hypothetical negotiation that occurred at the time of the infringement (when the "tool" was used, prior to identification of a potential drug candidate)22. It was reasoned that the damages calculation appeared to have been influenced by hindsight knowledge that a valuable drug candidate had emerged later in the process, after the infringement had occurred.

The Integra mixed bag
Although Integra is clearly a break from the trend of cases such as Rhone-Poulenc, Amgen and Nexell in that the preclinical activities in issue were not held to be within the exemption, and patented research tools were recognized to be valuable and not a category of invention to be excluded from the benefits of the Patent Act, beyond the specific situation before the Integra court, it is too early to predict the full impact of the case.
It is unclear whether practicing research or diagnostic patents during the clinical stage will be within the research exemption; and more generally, where exactly the line between exempted and nonexempted activity falls is still unclear.
The downside of the Integra decision for research tools patent holders is how the Federal Circuit addressed damages.
One could argue that "but for" infringement of the research tool patent, the research would not have continued to the point of the later-emerged valuable drug candidate, and thus, the research tool patent had a high value based on the value of the drug itself23.
However, the Federal Circuit in the specific situation of the Integra case discounted the knowledge of a later-emerged valuable drug candidate in the damages calculation.
Thus, it seems that the court under the particular facts of Integra may have reduced the "but for" value of the research tool patent. And this result may have a negative impact upon the value assigned to research tool patents. But, in another action, a patentee may be able to make a case for the "but for" value of the research tool patent.
Thus, although the Integra case may be an important improvement over the trend seen in Rhone-Poulenc, Amgen and Nexell, it represents a mixed bag for owners of research tool patents, and the contours of the open issues will likely be further addressed in later decisions.




1. 2003 WL 21299492 (Fed. Cir. June 6, 2003).
2. Id. at *6.
3. E.g., discussed infra.
4. 35 USC 271(e)(1).
5. 35 USC 273(e)(1).
6. See Eli Lilly & Co. v. Medtronic, Inc., 496 U.S. 661, 669-70, 110 S.Ct. 2683, 110
L.Ed.2d 605, 58 USLW 4838, 15 USPQ2d 1121 (1990).
7. 169 F.Supp.2d 328 (D.Del. 2001) (allegations of patent misuse from screening
method patent reach-through licensing not dismissed as failing to state claim of
patent misuse).
8. 228 F.Supp.2d 467 (D.Del. 2002). For a discussion of reach-through royalties
see Kowalski et al., Reach-through licensing: A US perspective, J. Comml.
Biotechnol.
6, 349-357 (2000).
9. 2001 US Dist. LEXIS 19361 (SDNY November 27, 2001).
10.3 F.Supp. 2d 104, 46 USPQ2d 1906 (D. Mass. April 15, 1998).
11.199 F.Supp.2d 197 (D. Del. April 19, 2002).
12.2003 WL 21299492, *4 (Fed. Cir. June 6, 2003).
13.Id.
14.Id.
15.Id. at *6.
16.Id.
17.Id. at *5.
18.Id.
19.Id.
20.Id.
21.Id. at *10.
22.Id. at *8.
23.See also Kowalski et al., supra, at 352.

This article is not to be considered opinions of Frommer Lawrence & Haug or any of the firm's clients; and nothing in this article is to be considered as legal advice, a substitute for legal advice, or as positions/strategies taken/employed in, or suitable for, any particular case or set of facts.

 


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Attorney Bio: Charles Raubicheck
Attorney Bio: Barry S. White
Attorney Bio: Thomas J. Kowalski
Attorney Bio: Daniel G. Brown
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