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30 September 2014Americas

LSIPR roundtable

The US Patent and Trademark Office (USPTO) guidance on the patent eligibility of natural products in the US following the Myriad and Mayo court cases is fundamentally flawed, according to the life sciences IP experts invited to take part in the first LSIPR roundtable discussion held earlier this month in London.

“There are so many things wrong with it,” said Jane Wainwright, a partner at Potter Clarkson in Nottingham. “I, personally, don’t disagree with the ability to exclude natural products. If it is found in nature then I don’t think it should be patentable. But … they have overstepped the mark.”

As reported by LSIPR on September 4 [http://www.lifesciencesipreview.com/article/a-hostile-response-to-the-uspto-s-guidelines], the USPTO’s request for comment on the guidelines it issued following the decisions in the Association for Molecular Pathology v Myriad Genetics, Inc (Myriad) and Mayo Collaborative Services v Prometheus Laboratories, Inc (Mayo) court cases prompted an avalanche of replies, which were overwhelmingly negative.

Now, the concern is that the USPTO may be unwilling to backtrack. “The difficulty is going to be that, with that sort of wave of anger against it, can the USPTO be big enough to admit it made a mistake?” asked Paul Chapman, a partner at Marks & Clerk in Edinburgh.

“It is unprecedented to have this level of objection and I just don’t know whether they will be able to. They have made it clear that they are not going to withdraw the guidelines, although they might amend them,” he added.

Another concern was whether the USPTO should be determining patent eligibility at all.

“That is one of the biggest problems,” said Wainwright. “Neither Congress nor the courts has made these rulings. The guidance doesn’t follow what Congress or the courts has said and they have taken it too far. Something of this magnitude, as fundamental as patent eligibility, should be decided by Congress or the courts.

“The USPTO officials have massively overstepped their own remit, but they don’t, at the moment, acknowledge that. They just say it is the logical extension of the Myriad decision,” she added.

Varuni Paranavitane, an associate at Osborne Clarke, thought the USPTO could be challenged. “The US Supreme Court decision itself is a nuanced decision that brings the law of patentable subject matter in line with the EU position,” she said. “It appears that the USPTO has gone beyond that. And I really don’t know why. I can’t speak for the US legal system, but presumably it can be challenged at a higher court.”

Chapman agreed. “There has been a precedent in the past where the US has introduced rules in relation to certain things,” he said. “They can be challenged over whether they have the right to make those rules because they are guidelines. They are not statute.”

However, Wainwright and Paranavitane both suggested there might have to be a patent refusal before the matter can be taken through the court system and a decision reached.

“They are effectively rules, because they reflect what the USPTO will do,” said Paul England, senior associate at Taylor Wessing. “What I find interesting is that the guidelines reflect and expand on the logic of the ruling in the case. I am looking at it in a different way and my question as a lawyer is ‘will the Supreme Court in later cases actually follow its own logic and fill out those guidelines?’ I suppose that is one of the big risks for patentees.”

"Something of this magnitude, as fundamental as patent eligibility, should be decided by Congress or the courts."

England suggested that the US position is now somewhat more restrictive than that in the UK and Europe. But he thought it unlikely that the guidance would lead to an exodus of research from the US. “In fact it really makes no difference where you’re located. What makes a difference is where you have a monopoly market,” he said.

Nonetheless, Chris Stothers, a partner at Arnold & Porter, noted that the guidance marked a switch for the US. “For years we were seeing the exact same arguments running the other way. A lot of criticism from the US said European rules are just too restrictive on subject matter. Forget about subject matter; you shouldn’t worry about that. Let’s look at novelty and inventive step—that is what innovation is about. This subject matter is ethical nonsense you do not need to worry about.

“Suddenly we have this switch-around, and all the criticism is being fired back at the US. Some of the responses, particularly from the Europeans, have been saying ‘you’ve been telling us that we are wrong for years and now you’re getting it wrong’. Also, the US rules are much more court-driven and these guidelines much less subject to scrutiny, whereas European rules are in the legislation. You may not like them but they are there, although the US rules seem to be being made with less scrutiny.”

Drawing the line

Meanwhile, the billion dollar question for researchers is where the line is drawn between those products that are patentable and those that are significantly different from a natural product, said England. “Where is that line to be drawn? That no doubt will be decided in future decisions but is clearly going to be a difficult question for those drafting patents to decide.”

Chapman noted that patent drafters are used to such problems. “The goalposts move a lot and we have to adapt what we do. The people who will really lose out in this are the ones who were granted patents and now have people questioning whether they are valid.”

This is even more true of patents that are pending, said Chapman. “There is nothing you can do about those. At least we have an idea and some tricks up our sleeve to adapt the way we draft, to try and address these rules. But if you have a pending case then you’re stuck with the language in the application. That is really difficult. Those guys who have built their whole industry, their whole company, around a big IP portfolio are the ones with issues.”

According to Chapman, start-up companies could be among the worst hit, while England noted that venture capital investors will be extremely nervous and cautious about what they invest in.

“The damaging thing for venture capitalists is the fact that this changed retrospectively, so you have a spot in time where people have lost rights where they would have drafted differently if they had known the rules would be like this,” said Stothers.

The more often it happens, the more damage is done to the market. “This is not a clever place to invest if you are going to have a sudden decision by the Supreme Court that wipes out a lot of investment. It doesn’t mean you won’t create new products in the future, but it does mean people might be less willing to invest, because they are worried about what is going to be the next Myriad/Mayo that is going to strip away the value we saw in this business,” Stothers added.

However, “there are different types of risk: the risk that can be avoided and the risk that cannot be avoided,” said Anna Duch, senior associate at Cambridge IP. “Investors have a choice between investing in different fields and, if they can avoid changing rules, why would they not do that?”

Meanwhile, with so much uncertainty hanging over the patent eligibility of natural products, some investors are now turning to diagnostics, said Chapman.

“They wouldn’t go into biotech because that is going to take too long. Instead they go into diagnostics and that has perhaps backfired a little at the moment. Medical devices is the obvious area they will start moving into because they can see a much quicker exit,” he said.