Friday 14 June 2013

The Biotechnology Industry and the Choice to Patent or Rely on Trade Secrecy

The U.S. Supreme Court released its much anticipated decision in the Myriad case today.  Basically, the U.S. Supreme Court held that isolated DNA is not patentable subject matter.  While the U.S. Supreme Court apparently dealt a blow to some in the biotechnology industry, it did provide that cDNA could be patentable subject matter and the opinion carefully explained what it did not cover:

It is important to note what is not implicated by this decision. First, there are no method claims before this Court. Had Myriad created an innovative method of manipulating genes while searching for the BRCA1 and BRCA2 genes, it could possibly have sought a method patent. . . . Similarly, this case does not involve patents on new applications of knowledge about the BRCA1 and BRCA2 genes. Judge Bryson aptly noted that, “[a]s the first party with knowledge of the [BRCA1 and BRCA2] sequences, Myriad was in an excellent position to claim applications of that knowledge.  Many of its unchallenged claims are limited to such applications.”  689 F. 3d, at 1349. Nor do we consider the patentability of DNA in which the order of the naturally occurring nucleotides has been altered. Scientific alteration of the genetic code presents a different inquiry, and we express no opinion about the application of §101 to such endeavors. We merely hold that genes and the information they encode are not patent eligible under §101 simply because they have been isolated from the surrounding genetic material.

Notably, Myriad’s stock went up immediately after the decision and the stock did go back down by the close of the market.  And, at least one company has announced today it will offer BRCA testing for about a third of Myriad’s price.  My understanding is that many firms in the biotechnology industry have turned their back on patenting and have focused instead on trade secrecy (although a sound IP strategy surely includes both).  This supposedly has been happening for quite a while—maybe 5 years now.  I’ve been told that one reason firms are seeking to utilize trade secrecy instead of patents is because of the cost of patenting—particularly in seeking patent protection throughout the world.  The Myriad decision seems to further tilt the biotechnology industry towards trade secrecy with respect to some discoveries, but will it make that much of a difference?  In other words, the industry already was going down the trade secrecy path—does this decision push it a little faster down the road or does it have little to no impact?  (it matters to Myriad considering the way Myriad’s stock is going)  What about the signaling effect of patents?  If there is more reliance on trade secrecy over patents, does that mean that investors will have more difficulty ascertaining the expertise and value of small biotechnology companies? 

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