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Patent pools as a solution to the licensing problems of diagnostic genetics United States and European perspectives

Advances in diagnostic genetic testing have resulted in the ability to diagnose an increasing number of genetic diseases through the use of multiple genes and/or gene fragments oftentimes displayed on microarrays.The field of drug discovery has also benefited from the use of microarrays containing multiple genes, antibodies, antigens or whole cells, in order to evaluate drug responses, side effects on metabolism and pharmacogenomic profiles.These advances have been accompanied by an increasing number of covering not only the genes and their fragments but also new diagnostic or research methods and microarrays.

By Dr Jorge A. ome commentators have predicted that this it has been proposed that the United States Goldstein, Dr Ted J. increase in patents pertaining to diagnos- and Trademark Office (USPTO) apply the existing Ebersole, Marvin C. Stic/evaluative genetic testing has and will statutory requirements for patentability more Guthrie,Annette A. continue to prevent clinicians and researchers stringently to the field of genomics, or that the Hirschfeld and Bart J. from developing and using these tests to benefit Court of Appeals for the Federal Circuit, the most van den Broek patients and further drug discovery1. Potential specialised patent court in the US, should apply its road blocks to the widespread use of genetic non-obviousness standards as stringently to human testing technologies are said to result from (1) gene patents as it does to other advancing fields of patentees exercising their right to exclude the technology4. Other proposed solutions include use of their patented technology by anyone other compulsory licensing5 or legislative exemptions for than themselves or their exclusive licensee diagnostic testing6. (‘exclusivity’)2 and (2) the need by potential We propose in this paper that the use of ‘patent users of genetic testing technology to acquire pools’ may overcome the negative consequences of multiple licences to an ever increasing number of ‘exclusivity’ and ‘stacking’ in the field of diagnos- patents owned by different patentees (‘stack- tic genetics as well as its applications in drug dis- ing’)3. The problems of licence exclusivity and covery. After providing some common definitions, patent stacking appear particularly acute in the we will analyse patent pools from both the US as area of multiplex arrays. well as the European perspectives and will con- Several solutions have been proposed to address clude by looking at the legal and practical require- the concerns arising out of patenting of diagnostic ments for patent pools in both regions of the genetic testing technology. For example, in the US world, concluding that they are very similar.

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Patent pools European Union perspectives on References A patent pool is an arrangement in which “two or patent pools 1 Leonard, DGB. Medical more patent owners agree to license certain of their On May 1, 2004 the Technology Transfer Block practice and gene patents: a personal perspective.Academic patents to one another and/or third parties”7. Exemption Regulation (TTBER) entered into force Medicine. 77:1388-1391 16 Critical to the structuring and implementing of in the European Union . The TTBER provides a (2002); Cho, MK et al. Effects patent pools are the definitions of complementary, safe harbour for agreements that, in principle, fall of patents and licenses on the competing, blocking and essential patents. under the prohibition of Article 81(1) of the EC provision of clinical genetic Complementary patents are for “technologies that Treaty17. Such safe harbour exists for agreements testing services. Journal of Molecular Diagnostics. 5:3-8 may be used together, and are not substitutes for that, while restricting or distorting competition (2003). 8 each other” . Two different patents, each on a dif- within the common market, would be allowable 2 Merz, JF. Disease Gene ferent Single Nucleotide Polymorphism (SNP) for because they promote technical or economic Patents: Overcoming Unethical the same disease would be complementary. progress. The TTBER does not cover patent pools, Constraints on Clinical Competing (also known as substitute) patents but the individual licences granted by the pool to Laboratory Medicine. Clinical Chemistry 45: 324-330. 1999. cover technologies that substitute for each other9. third party licensees may benefit from the TTBER 3 Barton, JH. Patents, A patent on a SNP and another one on an antibody safe harbour when the conditions set out in the genomics, research and might be competing technologies to diagnose the TTBER are fulfilled. diagnostics.Academic same disease. A blocking patent “block[s] another The European Commission has addressed Medicine. 77:1339-1347 if [the latter] can not be practised without infring- patent pools in its Guidelines on the application of (2002). 4 Eisenberg, RS.Why the gene ing on the basic patent”10. A patent on an isolated Article 81 (Article 81 Guidelines) to technology patenting controversy persists. gene and all its fragments might be blocking to all transfer agreements that may or may not fall Academic Medicine. 77:1381- genetic testing for a disease. Essential patents have under the scope of the TTBER18. The Commission 1387, 1385 (2002). been defined as ones having “no technical alterna- states that patent pools can produce pro-competi- 5 Andrews, LB. Genes and tive”, and are useful “only in conjunction with tive effects, in particular by reducing transaction patent policy: rethinking intellectual property rights. other pooled patents”11. An example would be a costs and by setting a limit on cumulative royalties Nature Reviews: Genetics. 19 patent on the critical SNP or the gene correlated to to avoid double marginalisation . ‘One-stop 3:803-808, 807 (2002). a disease. The distinction between complementary licensing’ of the technologies in the pool is partic- 6 Office of Legislative Policy and competing technologies is not always crystal ularly important in the Commission’s view in sec- and Analysis. 107th Congress. clear, since technologies may be partly competing tors where intellectual property rights are preva- Gene Patenting. H.R. 3966 and H.R. 3967. and partly complementary. lent and where, in order to operate in the market, http://olpa.od.nih.gov/legislatio The electronics industry is quite familiar with licences need to be obtained from a significant n/107/pendinglegislation/9gene. the concept of patent pools, through its stan- number of licensors20. This is certainly the case in asp (visited March 2, 2005). dard-setting bodies for the manufacture and diagnostic testing. 7 Antitrust Guidelines for the sale of, for example, DVDs12 and MPEGs13. In the Commission’s view, the competitive risks Licensing of Intellectual Property. Issued by the US Standard-setting has been an integral element of and the efficiency-enhancing potential of patent Department of Justice and the each of these two and other electronics patent pools depend to a large extent on the relationship Federal Trade Commission. § pools. The lack of industry standard setting between the pooled technologies and their rela- 5.5,April 6, 1995. bodies in the genetic diagnostic field (and in tionship with technologies outside the pool. The 8 Morse, MH.“Cross-Licensing biotechnology in general) has led to questions Commission states that, when due to efficiencies and Patent Pools: Legal Framework and Practical as to whether pro-competitive patent pools can stemming from the integration of two technolo- Issues.Antitrust and be developed for the industry. We believe struc- gies, licensees are likely to demand both technolo- Intellectual Property.The turing and implementing diagnostics patent gies, the technologies are treated as complements Intellectual Property pools may be facilitated by institutions such as even if they are partly substitutable21. A patent Committee Newsletter. 3:1, the American College of Medical Genetics pool composed solely or predominantly of substi- p.42 (2002). 9 Id. (ACMG) which are considering and issuing con- tute or competitive technology amounts to a price 10 Id. 22 sensus statements detailing the genes and/or fixing and therefore is not allowed under 11 Anthony, SF.Antitrust and fragments deemed necessary to adequately pre- Article 81 EC. Intellectual Property Law: dict or diagnose a genetic condition14. For The creation of a patent pool that is composed From Adversaries to Partners. example, in 2001, the ACMG set the criteria only of technologies that are essential, and, there- AIPLA Quarterly Journal. 28:1. Winter (2000). for, and selected a standard panel of, mutations fore, by necessity also complementary, is generally which are recommended for screening cystic allowed under Article 81 EC. The inclusion of non- fibrosis carriers15. Standard panels for the essential patents in a pool, however, may give rise genetic testing of many other diseases could, to competition . The Commission finds and most likely will, be set by the scientific that the inclusion of non-essential patents in a pool community and medical organisations within may cause a risk of foreclosure of third party tech- the next few years. nologies23. Also, the inclusion of non-essential Continued on page 88

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Continued from page 87 patents forces licensees to pay for technology that persons, the more likely it is that the dispute reso- they may not need24. lution will operate in a neutral way34. 12 Klein, J.Acting Assistant Therefore, in general, patent pools that encom- Attorney General,Antitrust Division, Department of pass non-essential technologies are likely to fall United States perspectives on Justice to Gerrard R. Beeney, under the prohibition of Article 81(1) EC. In an patent pools Esq. December 16, 1998. assessment of patent pools comprising non-essen- In 1995 the US Department of Justice (DOJ) issued http://www.usdoj.gov/atr/public tial technologies the Commission will take into the Antitrust Guidelines for the Licensing of /busreview/2121.htm (DVD-3 account whether there are any pro-competitive rea- Intellectual Property (DOJ Guidelines)35. Section Pool Business Review Letter) (visited March 2, 2005); (Digital sons for including the non-essential technologies in 5.5 of the DOJ Guidelines indicates that a patent Versatile Disc (DVD-3) the pool, whether the licensors remain free to pool which integrates complementary technolo- technology is used to store license their respective technologies independently, gies, clears blocking positions, reduces transaction large amounts of audio, video whether the pool offers the technologies only as a costs, avoids costly infringement litigation and and data onto one disc.) single package or whether it offers separate pack- promotes the dissemination of technology may be http://www.dvdforum.org/tech- 36 dvdprimer.htm (visited March ages for distinct applications, and whether the found to be pro-competitive and thus acceptable . 2, 2005); Klein, J.Acting pooled technologies are available only as a single However, a patent pool that constitutes a method Assistant Attorney General, package or whether licensees have the possibility of of fixing prices, allocates customers and markets, Antitrust Division, Department obtaining a licence for only part of the package excludes or drives competitors from the market, of Justice to Carey R. Ramos, with a corresponding reduction of royalties25. reduces innovation37, or discourages the partici- Esq. June 10, 1999. http://www.usdoj.gov/atr/public When assessing individual restraints commonly pants from engaging in research and develop- 38 /busreview/2485.htm (DVD-6 found in patent pools, the Commission will be ment may be found to be anti-competitive and Pool Business Review Letter). guided by the following main principles: the thus unacceptable. The DOJ Guidelines are – not 13 Klein, J.Acting Assistant stronger the market position of the pool the greater surprisingly – remarkably similar to the European Attorney General,Antitrust the risk of anti-competitive effects, pools that hold Commission’s Article 81 Guidelines. Division, Department of Justice, to Garrard R. Beeney, a strong position in the market should be open and Between 1997 and 2002 the guidance of Esq. June 26, 1997. non-discriminatory , and pools should not unduly Section 5.5 has been interpreted and expanded by http://www.usdoj.gov/atr/public foreclose third party technologies or limit the cre- the issuance by the DOJ of Business Review /busreview/1170.htm (MPEG_2 ation of alternative pools26. Letters for the (electronic) MPEG-239 DVD-340 Pool Business Review Letter) Where the pool has a dominant position on the and DVD-641 pools and the 3G patent plat- (visited March 2, 2005); 42 (Motion Pictures Coding market, royalties and other licensing terms should form . These interpretations suggest additional Experts Group (MPEG_2) be fair and non-discriminatory, and licences should criteria for structuring and implementing future technology is the designation be non-exclusive27. Also, licensors and licensees pro-competitive patent pools. These criteria of agreed upon standards for must be free to develop competing products and which are, again, quite similar to the European audio and video coding.) standards, and must also be free to grant and Article 81 Guidelines include: patents in the pool http://www.fact- 28 index.com/m/mp/mpeg_2.html obtain licences outside the pool . Further, grant- must be valid, essential and complementary, not (visited March 2, 2005). back provisions should be non-exclusive and limit- substitutive, as determined by an independent 14 Grody,WW et al. ed to developments that are essential or important expert; any grantback provisions should obligate Laboratory Standards and to the use of the pooled technology29. In order to licensees to grant-back to the pool “essential Guidelines for Population- limit the risk of invalid patents, any right to termi- patents” on a non-exclusive basis, and at a fair based Cystic Fibrosis Carrier Screening. Genetics in nate a licence in the case of a challenge must be and reasonable royalty. In addition, the pools Medicine. 3:149-154 (2001). limited to the technologies owned by the licensor should not enable the licensors to unreasonably: 15 Id. who is the addressee of the challenge and must not aggregate competitive technologies or set a single 16 Commission Regulation extend to the technologies owned by the other price for the pooled technologies, disadvantage (EC) No 772/2004 on the licensors in the pool30. competitors in downstream product markets, col- application of Article 81(3) of the Treaty to categories of With regard to the institutional framework gov- lude on prices outside the scope of the pool, or technology transfer erning the patent pool, the Commission highly impair innovation in the development of rival agreements. Official Journal of favours the involvement of independent experts in products or technologies. the European Union.April 27, the selection process in order to ensure that the Let us now apply these principles from both the 2004. patents put forward for inclusion in the pool are US and Europe to the formation of patent pools in valid and essential31. The Commission will also diagnostic/evaluative technologies. take into account what safeguards have been put in place to ensure that sensitive information (such as What patents should be included in a pricing/cost information) is not exchanged32. diagnostic pool and who decides? Finally, the Commission takes into account dispute 1. Only essential and complementary patents. resolution mechanisms33. The more that dispute Whether a patent is essential or not will depend on Continued on page 89 resolution is entrusted to independent bodies or the mutation(s) claimed and their diagnostic value.

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If there are multiple patented fragments or SNPs request re-examination of the patent before the Continued from page 88 which cover different segments of a gene involved USPTO, or both. in a particular polymutational disease (ie, a disease 17 Article 81(1) of the EC Treaty prohibits all agreements that is correlated to more than one mutation or 5. An independent expert(s) is required. We rec- “which have as their object or more than one gene), and only a small number ommend the formation of an independent com- effect the prevention, have some degree of diagnostic value, then these mittee of experts consisting primarily of represen- restriction or distortion of would be considered essential for the patent pool. tatives from commercial and clinical institutions, competition within the A pool for the diagnostic genetics of such disease as well as attorneys who are experts in biotech- common market.” This article may not apply for those should only contain these patented fragments or nology patent law and antitrust law. The commit- agreements which fall under SNPs. The patents will be essential if they are cho- tee’s tasks will include selecting the patented Article 81(3). sen so that they cover or ‘read on’ the standard genes, fragments or SNPs considered complemen- 18 Commission Notice: panel of mutations or genes (or other biological tary, essential and/or blocking to the patent pool. Guidelines on the application materials, such as antibodies or antigens) recom- The committee may treat recommendations issued of Article 81 of the EC Treaty to technology transfer mended by a consensus setting body such as the from a consensus-setting body such as the ACMG agreements (2004/C 101/02). ACMG, or similar medical organisation. as establishing a ‘standard’ to be implemented in Official Journal of the deciding which patents are essential, and comple- European Union.April 27, 2. Any blocking positions should be included. If, for mentary but not substitutive. 2004. example, a company were to have a dominating 19 Id. at ¶ 214. 20 Id. patent on a purified gene involved in breast cancer, What terms, including pricing, should a 21 Id. at ¶ 218. including all fragments that hybridise to it, it would diagnostic pool offer? 22 Id. at ¶ 213. be critical to include that patent in the pool so that 6. The pool should promote the dissemination of 23 Id. at ¶ 221. any problems caused by blocking later patents on technology. A patent pool should not restrict inno- 24 Id. valuable SNPs can be eliminated. If the blocking vation. Several ways to accomplish this are: 1) 25 Id. at ¶ 222. 26 Id. at ¶ 224. patent is not included, the pool may not cover the licences offered to the patent pool by its members 27 Id. at ¶ 226. essential patents and may be anti-competitive. should be non-exclusive so that individual mem- 28 Id. at ¶ 227. bers may still offer outside individuals a separate 29 Id. at ¶ 228. 3. No aggregation of competing patents and setting licence to their (s)43. This will, in 30 Id. at ¶ 229. a single price for them. Consider diagnostically effect, help prevent the anti-competitive effects of 31 Id. at ¶ 232-233. 32 Id. at ¶ 234. useful genes or gene fragments X1a and X1b which ‘tying’ or requiring multiple licences to be taken 33 Id. at ¶ 235. cover a similar area of genetic material and which when only one is desired; 2) assure non-discrimi- 34 Id. are owned by different patentees. Allowing both natory pool licensing on the same terms and con- 35 See n. 7, supra. patents into the pool could run the risk of the two ditions to all would-be licensees44; and 3) allow 36 Id. patentees colluding on the price for the licence. for receipt by the pool of a narrow grant-back 37 Id. 45 38 ABA Section of Antitrust This type of situation is less likely to happen in the clause from the licensees . Under such a grant- Law,The Federal Antitrust application of a patent pool to diagnostic genetics back clause the licensee agrees to offer back to the Guidelines for the Licensing of of a polymutational disease because there should patent pool a non-exclusive licence to any of its Intellectual Property: Origins not be two patents on the same area of genetic own essential improvement patents at a fair and and Applications (2nd ed.2002) material; if there were multiple ones, only one reasonable royalty46. A successful grant-back pp.82-83. 39 See n. 13, supra. should be selected. clause will be narrowly drafted so that it only 40 See n. 12, supra. encompasses those essential future patents of the 41 Id. 4. Only valid and unexpired patents in the patent licensee that are commensurate with the technolo- 42 James, C.Acting Assistant pool. There ought to be a mechanism to vet patents gy of the patent pool licence47. This agreement Attorney General,Antitrust of dubious validity. It is relatively easy to mandate prevents the licensee from extracting the benefits Division, Department of Justice to Ky P.Ewing, Esq. that if a member’s only patent expires or is invali- of the patent pool while holding out its own essen- November 12, 2002. 48 dated by a third party, it is necessary for that mem- tial patents . http://www.usdoj.gov/atr/public ber to replace the invalid or expired patent with a /busreview/200455.htm (3G new patent which meets the patent pool criteria in 7. Do not disadvantage competitors’ downstream Pool Business Review Letter) order to remain as a member of the pool. However, markets that use the pooled technologies as inputs. (visited March 2, 2005). See also, Balto, D.The Antitrust absent an invalidation event, the pool participants The US DOJ approved the MPEG and DVD patent Analysis of the 3G Patent might agree that if prior art or argumentation not pools partly because each proposed pool had limi- Platform,Antitrust And previously considered by the US or European tations to prevent foreclosure of competition in the Intellectual Property 5:16 Patent Offices is brought to one the members’ downstream market49. These pools had a “reason- (Spring 2004). attention, the pool has the responsibility of either able” royalty which was a “tiny fraction” of down- 43 See n. 11, supra. 44 See n. 13, supra. obtaining an opinion of counsel that the patent stream product prices or “small relative to the total remains valid and enforceable, or, in the US, costs of manufacture”50. The determination of how Continued on page 90

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Continued from page 89 “small” or “reasonable” a royalty is has been sensus-setting bodies like ACMG greatly expand inconsistent because of the lack of standard royalty the diseases for which it makes recommendations 45 See n. 8, supra, at 51; rates and multiple interpretations of “reason- and sets standards. If a well established and Merges, Robert P.Institutions 51 for Intellectual Property able” . It has been suggested that a percentage cap respected entity such as ACMG deems it important Transactions:The Case of should be implemented for pools so that the royal- enough to issue a consensus statement regarding a Patent Pools. University of ties do not grow to be excessive over time. This is handful of mutations necessary to adequately pre- California at Berkeley (Boalt so because even though a royalty may have been dict a disease or condition, then the relevant patent Hall) School of Law.August, “small” or “reasonable” at the beginning, the cost holders will recognise how crucial it is that all of 1999, Revision. pp. 1-74, 35. http://www.law.berkeley.edu/in of producing the downstream product decreases these mutations be tested simultaneously, and offer 52 stitutes/bclt/pubs/merges/pools with time . assistance by agreeing to participate in a patent .pdf (visited March 4, 2005). pool. Going at it alone will become the less- 46 Id. 8. Pool members must be prohibited from collud- favoured mode of doing business. Other incentives 47 Id. ing on prices outside the scope of the patent pool include a fair distribution of income generated 48 Id. 57 49 See n. 8, supra, at 48-50. licence. A patent pool on diagnostic genetics from the pool and the ability for members to 58 50 Id. should discourage collusion among the licensors or operate freely among the pooled patents . 51 Id. licensees in any market53. In the MPEG-2 patent Pools crafted in this manner may well resolve 52 Id. pool the US DOJ noted approvingly that confiden- potential roadblocks to the widespread use of the 53 See n. 13, supra. tiality provisions existed which prohibited the new genetic testing technologies. As a result, the 54 Id. 55 Id. patent pool licensors and licensees from exchang- financial and social value of patent pools will 54 56 Resnik, DB.A ing competitively sensitive information . Also, the become apparent to the diagnostic industry and to Biotechnology Patent Pool:An DOJ acknowledged that because the royalty rates other industries that utilise diagnostic or evaluative Idea Whose Time Has Come? were to be reasonable, it was unlikely that they tests, such as for example the use of microarrays in The Journal of Philosophy, could be used to facilitate collusion of prices for drug development. The new genetic and evaluative Science & Law.Volume 3 55 (2003). downstream products . testing technologies will then be more broadly http://www.psljournal.com/ available to all. DDW archives/papers/biotechPatent. Conclusions cfm (visited March 4, 2005). Based on the US DOJ Guidelines/Business Review 57 Id. letters, as well as the Article 81 European 58 Sung, LM. Greater Predictability May Result in Guidelines, we suggest that patent pools for diag- Patent Pools. nostic genetics can be formed without running http://www.ftc.gov/opp/intellec afoul of anticompetition laws in either region of t/020417lawrencemsung1.pdf the world. Jorge A. Goldstein, PhD, Ted J. Ebersole, PhD and (last visited March 4, 2005). One obstacle to forming any patent pool will Marvin C. Guthrie are all attorneys in the always be to find incentives for the critical patent Washington, DC, office of Sterne, Kessler, holders to provide their patents to the patent pool Goldstein & Fox. instead of going at it alone56. The biggest incentive for the holders of essential patents especially block- Annette A. Hirschfeld and Bart J. van den Broek ing ones to join with other essential patent holders are attorneys in the Amsterdam, The Netherlands, rather than going at it alone, will occur once con- office of Howrey, Simon, Arnold & White.

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