The Patent Eligibility Restoration Act of 2023 -- Will it make over the finish line?

Senator Thom Tillis’ Patent Eligibility Restoration Act of 2023 is moving through the U.S. Senate.  It appears to be a compromise to earlier patent eligibility reform legislation.  Here are the main provisions of the act. 

 

§ 101. Patent eligibility (a) IN GENERAL.—Whoever invents or discovers any useful process, machine, manufacture, or composition of matter, or any useful improvement thereof, may obtain a patent therefor, subject only to the exclusions in sub section (b) and to the further conditions and requirements of this title.

(b) ELIGIBILITY EXCLUSIONS.—

(1) IN GENERAL.—Subject to paragraph (2), a person may not obtain a patent for any of the following, if claimed as such: (A) A mathematical formula, apart from a useful invention or discovery. (B) A process that— (i) is a non-technological economic, financial, business, social, cultural, or artistic process; (ii) is a mental process performed solely in the human mind; or (iii) occurs in nature wholly independent of, and prior to, any human activity. (C) An unmodified human gene, as that gene exists in the human body. (D) An unmodified natural material, as that material exists in nature. 

(2) CONDITIONS.— (A) CERTAIN PROCESSES.—Notwithstanding paragraph (1)(B)(i), a person may obtain a patent for a claimed invention that is a process described in such provision if that process is embodied in a machine or manufacture, unless that machine or manufacture is recited in a patent claim without integrating, beyond merely storing and executing, the steps of the process that the machine or manufacture perform. (B) HUMAN GENES AND NATURAL MATERIALS.—For the purposes of subparagraphs (C) and (D) of paragraph (1), a human gene or natural material that is isolated, purified, enriched, or otherwise altered by human activity, or that is otherwise employed in a useful invention or discovery, shall not be considered to be unmodified. 

(c) ELIGIBILITY.—  (1) IN GENERAL.—In determining whether, under this section, a claimed invention is eligible for a patent, eligibility shall be determined—  (A) by considering the claimed invention as a whole and without discounting or disregarding any claim element; and (B) without regard to— (i) the manner in which the claimed invention was made; (ii) whether a claim element is known, conventional, routine, or naturally occurring;  (iii) the state of the applicable art, as of the date on which the claimed invention is invented; or (iv) any other consideration in section 102, 103, or 112. 

(2) INFRINGEMENT ACTION.— (A) IN GENERAL.—In an action brought for infringement under this title, the court, at any time, may determine whether an invention or discovery that is a subject of the action is eligible for a patent under this section, including on motion of a party when there are no genuine issues of material fact. (B) LIMITED DISCOVERY.—With respect to a determination described in subparagraph (A), the court may consider limited discovery relevant only to the eligibility described in that subparagraph before ruling on a motion described in that subparagraph.

U.S. International Trade Commission Covid-19 Diagnostics and Treatment Development and Access Report

The U.S. International Trade Commission released a corrected version of its COVID-19 Diagnostics and Therapeutics: Supply, Demand and TRIPS Flexibilities Report in December of 2023.  Chapter 7 is a summary of views of interested parties.  I found that interesting, particularly the section on jobs related to the pharmaceutical and biotech industries.  The following is an excerpt from the Executive Summary:

The TRIPS Agreement sets minimum standards for the protection and enforcement of IP rights. It also includes flexibilities. Persons providing input to the Commission disagreed about the extent to which the 2022 Ministerial Decision expands flexibilities and whether the decision should be extended to COVID-19 diagnostics and therapeutics.

Determining a definitive scope of what products are covered by the terms “diagnostics” and “therapeutics” as they pertain to COVID-19 and what constitutes relevant COVID-19 diagnostics and therapeutics covered by patents is complicated and subject to interpretation. Based on definitions in the medical field of “diagnostics” and “therapeutics,” a COVID-19 diagnostic is a good used to diagnose or identify how patients respond to treatments for COVID-19, and a COVID-19 therapeutic is a good used to treat COVID-19. The universe of COVID-19 diagnostics and therapeutics covered by patents or in development that fall within those definitions is broad and varied. There are various parameters that could be applied, individually or in combination, to identify relevant COVID-19 diagnostics and therapeutics, including whether the product is covered by patent, whether the product is directed to COVID-19 (virus-directed), and whether the product has received regulatory approval or authorization; application of each comes with its own challenges.

The development and commercialization of COVID-19 diagnostics and therapeutics occurred on an extremely compressed timeline. Manufacturing of diagnostics and therapeutics involves multiple stages, each of which requires careful attention to detail and strict quality control measures. The two fields of diagnostics and therapeutics are composed of different producers, inputs, know-how, and so on. Generally, COVID-19 diagnostics can be brought to market faster than COVID-19 therapeutics, and the knowledge and manufacturing base globally for small-molecule drugs is larger than for biologics. Research and development of virus-directed COVID-19 diagnostics and therapeutics primarily occurred in HICs, but manufacturing of diagnostics and therapeutics occurred in countries of all income levels except for LICs. As of summer 2023, China (UMIC) reportedly had the highest number of manufacturers of COVID-19 diagnostics (247), and India (LMIC) had the largest number of reported therapeutics manufacturers (56). It is difficult, however, to ascertain how much COVID-19 diagnostics and therapeutics production came online or is still ongoing.

A variety of advantages and challenges are associated with the use of voluntary licenses to provide access to IP associated with COVID-19 therapeutics and compulsory licenses to access COVID-19 therapeutics and other patented pharmaceutical products. Voluntary licenses and compulsory licenses generally were not used to access IP associated with COVID-19 diagnostics. Voluntary licenses have been an important mechanism that was used to offer COVID-19 therapeutics for sale at reduced prices in LICs, LMICs, and some UMICs; however, many UMICs have been excluded from coverage under voluntary licenses. Voluntary licenses also provided a mechanism for technology transfer and knowledge sharing to support the manufacture and regulatory approval of less expensive licensed products. Compulsory licenses have been used by a small number of countries to access IP associated with certain COVID-19 therapeutics. The primary, commonly cited benefits for countries utilizing compulsory licenses are reduced costs and improved access. Another primary benefit of compulsory licenses reportedly is that they provide leverage to negotiate voluntary licenses. One of the main disadvantages is that they do not provide a basis for sharing knowledge.

The availability of supplies to meet global demand for COVID-19 diagnostics and therapeutics has been a moving target throughout the pandemic. Estimates or calculations of demand for these goods differ depending upon whether the metric is market demand or need. When infection rates rose sharply in early 2021, before manufacturers had scaled up production and regulators had granted approvals, access was limited and available only to a few HICs. During 2021, more products became available for procurement. By early 2022, infection rates and deaths from COVID-19 steadily declined as vaccination rates grew and natural immunity strengthened. By early May 2023, the World Health Organization (WHO) declared that COVID-19 would no longer be classified as a public health emergency of international concern. Today, market demand has waned in some countries, with several manufacturers no longer pursuing regulatory approval and stopping production altogether.

The disparity among countries of different income groups is wide in terms of access and availability to COVID-19 diagnostics and therapeutics. About 80 percent of government procurements were by HICs, 14 percent by UMICs, and 5 percent by LMICs. No government purchases were made by LICs, although products were made available to them through multilateral organizations. The wide disparity among countries in their ability to access COVID-19 diagnostics and therapeutics is the result of multiple factors, including access to IP, prices and affordability, regulatory approvals, healthcare infrastructure, and the healthcare priorities of governments. The importance of each of these and other factors impacting availability and demand varies greatly among countries, although high prices and the lack of price transparency appear detrimental to many countries seeking access.

Academic literature on the effects of patent protection, compulsory licenses, and the MPP is limited and would benefit from additional research. From the available evidence, patent protection is generally found to be more beneficial to innovation in the health sector for developed countries and less so for developing countries. Patent protection is often found to result in higher prices for medicines, which decrease access, but patent protection can also have some counteracting effects, such as increases in international trade flows of pharmaceuticals and faster drug launches in markets, that help improve access. Researchers have found that compulsory licenses and the MPP are associated with increased generics and lower prices, and increased access to pharmaceuticals. Researchers have not studied the relationship between compulsory licenses and the MPP and access to COVID-19 diagnostics and therapeutics.

Judges Lourie and Newman of the Federal Circuit Critique Alice/Mayo and Myriad

The U.S. Court of Appeals for the Federal Circuit, in AatrixSoftware, Inc. v. Green Shades Software, Inc., recently denied a rehearing en banc concerning two cases that may make it more difficult to dismiss a claim challenged for lack of patent eligible subject matter under the Alice/Mayo test because of factual issues.  This leaves intact the ability of counsel to raise factual issues which may avoid early resolution of a patent infringement action on patent eligible subject matter grounds.  Notably, Judges Lourie and Newman, both of whom have graduate degrees in technical fields and are very experienced members of the Federal Circuit, requested in a concurring opinion that the U.S. Congress revisit patent eligible subject matter, particularly in light of the Alice/Mayo test and the U.S. Supreme Court “abstract idea gloss.”  Judge Lourie states:

The case before us involves the abstract idea exception to the statute.  Abstract ideas indeed should not be subject to patent.  They are products of the mind, mental steps, not capable of being controlled by others, regardless what a statute or patent claim might say.  Gottschalk v. Benson, 409 U.S. 63, 67 (1972) (“[M]ental processes, and abstract intellectual concepts are not patentable, as they are the basic tools of scientific and technological work.”).  No one should be inhibited from thinking by a patent.  See Letter from Thomas Jefferson to Isaac McPherson (Aug. 13, 1813) (“[I]f nature has made any one thing less susceptible, than all others, of exclusive property, it is the action of the thinking power called an Idea.”).  Thus, many brilliant and unconventional ideas must be beyond patenting simply because they are “only” ideas, which cannot be monopolized.  Moreover such a patent would be unenforceable.  Who knows what people are thinking?  

But why should there be a step two in an abstract idea analysis at all?  If a method is entirely abstract, is it no less abstract because it contains an inventive step?  And, if a claim recites “something more,” an “inventive” physical or technological step, it is not an abstract idea, and can be examined under established patentability provisions such as §§ 102 and 103.  Step two’s prohibition on identifying the something more from “computer functions [that] are ‘well-understood, routine, conventional activit[ies]’ previously known to the industry,” Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347, 2359 (2014) (alteration in original) (quoting Mayo, 566 U.S. at 73), is essentially a §§ 102 and 103 inquiry.  Section 101 does not need a two-step analysis to determine whether an idea is abstract.   I therefore believe that § 101 requires further authoritative treatment.  Thinking further concerning § 101, but beyond these cases, steps that utilize natural processes, as all mechanical, chemical, and biological steps do, should be patent-eligible, provided they meet the other tests of the statute, including novelty, nonobviousness, and written description.  A claim to a natural process itself should not be patentable, not least because it lacks novelty, but also because natural processes should be available to all.  But claims to using such processes should not be barred at the threshold of a patentability analysis by being considered natural laws, as a method that utilizes a natural law is not itself a natural law.

Judge Lourie also criticized the U.S. Supreme Court’s decision in Myriad Genetics:

[F]inding, isolating, and purifying such products are genuine acts of inventiveness, which should be incentivized and rewarded by patents.  We are all aware of the need for new antibiotics because bacteria have become resistant to our existing products.  Nature, including soil and plants, is a fertile possible source of new antibiotics, but there will be much scientific work to be done to find or discover, isolate, and purify any such products before they can be useful to us.  Industry should not be deprived of the incentive to develop such products that a patent creates.  But, while they are part of the same patent-eligibility problems we face, these specific issues are not in the cases before us.   Accordingly, I concur in the decision of the court not to rehear this § 101 case en banc.  Even if it was decided wrongly, which I doubt, it would not work us out of the current § 101 dilemma.  In fact, it digs the hole deeper by further complicating the § 101 analysis.  Resolution of patent-eligibility issues requires higher intervention, hopefully with ideas reflective of the best thinking that can be brought to bear on the subject.

There are numerous proposals for changing patent eligible subject matter before the U.S. Congress, for example, see the AIPLA proposal, here. 

The B Corp—A Big Change Coming for IP Investment and Practice or What Would Myriad do?

On July 17, 2013, the Governor of one of the most, if not the most popular state to incorporate, Delaware, signed into law the B Corp (or public benefit corporation).  What is the B Corp?  According to the press release by the Governor’s office, the B Corp is “a new kind of socially conscious for-profit corporation intended to operate in a responsible and sustainable manner.  Their affairs are to be conducted for the benefit not only of stockholders, but also for public interest and those affected by the corporation’s activities.”  The press release also states:

A public benefit corporation (PBC) will be formed in the same manner as any other corporation formed under the Delaware General Corporation Law. However, in order to be a PBC, the corporation’s certificate of incorporation must identify one or more specific public benefits and must have a name that clearly identifies its status as a PBC. Public benefits for which corporations may be formed include, but are not limited to, those of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technical nature.

At least once every two years, a public benefit corporation must send its stockholders a statement with respect to its promotion of the public benefit(s) identified in its charter, as well as its promotion of the best interests of those materially affected by the corporation’s conduct.

Here is an article by Chrystia Freeland in The New York Times (July 18, 2013) titled Capitalism, but With a Little Heart about the B Corp.  How will this impact new companies (and existing companies) in the technology sector?  (any comments from the tax experts?)  Would you be more willing to invest in a company if you knew it was a “B Corp?”  Will “B Corps” use IP differently than other types of entities?  If Myriad was a “B Corp” would its actions be different? What do you think? 

Myriad—Enforcement Continues and Now March-in Rights to Protect the Public?

Immediately after the U.S. Supreme Court issued the Myriad opinion, numerous competitors to Myriad announced that they would offer genetic testing for breast cancer at a much lower price than that offered by Myriad before the decision.  One of those competitors was Gene by Gene who offered the possibly noninfringing test for a price that was about one third of Myriad’s price before the U.S. Supreme Court’s decision.  Myriad responded with several patent infringement suits alleging infringement against some competitors including Gene by Gene.  Here is the Gene by Gene complaint filed on July 10, 2013. 

Notably, some of the patents held by Myriad were funded by the federal government and thus, are subject to the provisions of the Bayh-Dole Act.  The influential U.S. Senator Patrick Leahy of Vermont has sent a letter to the Director of the National Institutes of Health urging the exercise of “march-in rights” under the Bayh-Dole Act.  March in rights can be exercised by the federal government in certain circumstances:

(a) With respect to any subject invention in which a small business firm or nonprofit organization has acquired title under this chapter, the Federal agency under whose funding agreement the subject invention was made shall have the right, in accordance with such procedures as are provided in regulations promulgated hereunder to require the contractor, an assignee or exclusive licensee of a subject invention to grant a nonexclusive, partially exclusive, or exclusive license in any field of use to a responsible applicant or applicants, upon terms that are reasonable under the circumstances, and if the contractor, assignee, or exclusive licensee refuses such request, to grant such a license itself, if the Federal agency determines that such--

(1) action is necessary because the contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use;

(2) action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees; . . . .

March in rights have never been exercised by the federal government even though there have been several requests.  What good are the rights if they are never exercised?  As a deterrent?  How good is the deterrent if the rights aren’t going to be exercised?  The prior requests have mostly involved claims concerning reasonable pricing—a theory which has been rejected by some.  Is this the perfect case for a change (at least for federally funded patents)?  Can Myriad price its tests in such a way that allows it to recover its alleged $500 million in developing the patented inventions, earn a “reasonable” profit and provide relatively wide access? What do you think? 

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? 

Roller Coaster Day for Myriad Genetics

It was a bit of a roller coaster day for US biotech Myriad Genetics as it share price plunged 9% on news that the US Supreme Court would be reviewing it '782 patent directed towards the BRACA1 and BRCA2 genes. The court wants to look at the questions of whether isolated genes should be patentable or not under US Patent Law.

The share price regained - presumably as other traders picked up "bargains" - and lost only 1.4% at the end of the day. Nonetheless it's an informative lesson to see how IP-based businesses, such as Myriad Genetics, react to changes in patent law and decisions of courts on their basic patents.

The background to the case is fairly simple. Myriad Genetics was founded by Walter Gilbert (1980 Nobel Prize winner) and Mark Skolnick of the University of Utah, who had performed the sequencing of the BRACA1 gene. This gene had previously been linked to an increase in breast cancer. A subsidiary of Myriad Genetics markets test kits for testing for breast cancer. A number of plaintiffs filed for revocation of the patents and the suit was demised in the Southern District of New York. The Court of Appeals for the Federal Circuit decided in favour of the patent holders and the American Civil Liberties Union filed a petition for a writ of certiorari (review) with the US Supreme Court.

Much of Myriad's revenue is derived from selling kits for testing for breast cancers and ovarian cancers and the patents held by Myriad are clearly important for maintaining the price of the tests (and thus justifying the share price). Any decision by the Supreme Court rejecting the notion that even isolated genes should not be patentable will impact on Myriad's revenues since it would open up the cancer testing market to competition.

Myriad argue strongly that their tests are fairly priced and that this has been demonstrated by independent economists. The ACLU (and others) argue that the market would be better served by having greater competition. There is certainly a moral argument to be made - but that should be in the realm of competition law and (possibly) compulsory licences. The role of the patent system is to support innovation and ensure that companies invest in research and development stimulated by the opportunity to obtain a limited degree of monopoly. In Myriad's case this is reflected by the company's expenditure in 2012 of almost 10% of revenue (and about 25% of profits) in R&D.

Myriad are careful to explain the impact of the suit in their 2012 Annual Report. They explain that they do not think that an adverse judgement would be issued and, even if it did, they do not believe that others will be able to commercialise genetic tests. Their 10-K filing with the SEC notes correctly that that there could be a material adverse impact on the company from an adverse opinion. It's difficult to discuss the statement without going into great detail about what the patents might and might not cover. Sales of the BRACAnalysis test comprise 82% of the company's revenues and so any competition is likely to impact.

On the other hand, the dispute only relates to protection in the US. Myriad have already prevailed over an opposition in Europe filed by a number of interested parties. Their patents on isolated DNA has been upheld (but limited in scope than the original request). aWhilst still at least theoretically open to challenge in national courts, the patent is presumably much stronger having survived the challenge and thus the risk of revocation is much less than the uncertainty prevailing in the US.

Given this background, it's not surprising that the share price dipped on announcement of the review. It's going to add to uncertainty in revenues which needs to be considered by investors. The long-term effect on the stock price will ultimately depend on the Court's decision expected in 2013.