NATURE BIOTECHNOLOGY VOLUME 23 NUMBER 6 JUNE 2005 659

Reexamining the research exemptionMauricio A Flores & Cathryn Campbell

The US Supreme Court is considering the reach of patents into basic research. If it decides to exempt a broad swathe of research, the biotech industry could lose millions.

The extent to which biomedical research is subject to the patent laws continues to trouble scientists and decision makers in the pharma-ceutical and biotech industries. Many hope that the Supreme Court will clarify this issue when it decides this summer Integra LifeSciences v. Merck KGaA, a case that has been making its way through the courts since 1996. The deci-sion likely will shed some light on the scope of the US Food and Drug Administration (FDA) Exemption to Infringement enacted in 1984, as part of the Hatch-Waxman Act. However, because it is unlikely that the court will adopt a rigid standard that can be applied with cer-tainty to all situations, important issues, such as the applicability of the FDA exemption to activities that infringe tool patents, no doubt will remain unsettled.

Case specificsThe Integra Lifesciences v. Merck KGaA litiga-tion involves research sponsored by Darmstadt, Germany-based Merck KGaA in its efforts to develop an anti-angiogenesis drug for use in treating various solid tumors. That research, which was conducted by The Scripps Research Institute in San Diego, California, was found by a jury in the District Court in San Diego to infringe pioneering patents relating to adhe-sion peptides containing an RGD (Arg-Gly-Asp) binding site and their uses to attach and detach cells from substrates.

Integra had learned about Merck KGaA’s involvement in the infringing research from articles published by Scripps researchers, which

cited Merck KGaA as a sponsor. When it then attempted to negotiate a license with Merck KGaA, the pharmaceutical company refused. At no point before or during the case did Merck KGaA offer to take a license.

Into the courtsIn defending itself against charges of inducing patent infringement, Merck KGaA invoked the FDA Exemption (codified at 35 USC 271(e)), which protects activities that are reasonably related to the development and submission of information under a federal law that regu-lates the manufacture, use and sale of drugs. Merck KGaA argued that the preclinical experiments conducted by Scripps related to the safety and efficacy of RGD compounds.

At a 25 day trial in the United States District Court in San Diego, however, the jury learned that Merck KGaA itself intended to perform all of the preclinical experiments in support of its Investigational New Drug Application in Germany. Merck KGaA’s and Scripps’ wit-nesses also admitted that the majority of the infringing experiments were performed on chicken embryos, which lack any established connection to human safety. Faced with this conflicting record, the jury found that Merck KGaA had not met its burden of establishing the infringing experiments qualified for the FDA Exemption.

On appeal to the Court of Appeals for the Federal Circuit, which has jurisdiction over all cases involving patent issues, Merck KGaA

Mauricio A Flores and Cathryn Campbell, McDermott Will & Emery LLP, 18191 Von Karman Avenue, Irvine, CA, USA. Mr. Flores argued on behalf of Integra LifeSciences before the Supreme Court on April 20, 2005. e-mail: ccampbell@mwe.com

The Darmstadt, Germany headquarters of Merck KGaA, whose legal battle with Integra Lifesciences has served as a lightning rod for the debate on the reach of biotech patents.

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argued that the Scripps’ experiments were protected by the FDA Exemption because they formed a “rational predicate” to its FDA submission. In other words, they were a neces-sary step in the chain of research leading to an FDA filing. The Federal Circuit rejected Merck KGaA’s rational predicate theory, ruling that the exemption does not automatically cover all experiments, however attenuated, in the chain leading up to an FDA submission. The Federal Circuit opinion emphasized that Congress intended to limit the exemption to FDA-related activities in order to prevent an effective patent term extension: branded drug manufacturers were effectively shielded from competition after expiration of their patents due to the length time it took for generic competitors to begin testing and obtain FDA approval if the work could not commence until the patent expired.

If adopted, Merck KGaA’s rational predicate standard would go far beyond this limited Congressional intent and convert the FDA Exemption into a general exemption for all bio-medical research. The Federal Circuit rejected Merck KGaA’s argument in part because such a broadened exemption would, in the language of the Federal Circuit, “vitiate the value” of pat-ents on biomedical research tools.

The Bush administration weighs inThe Supreme Court has discretion as to which cases it will review. Faced with Merck KGaA’s petition the Supreme Court asked the US

government to submit a brief stating its view of the matter. The Government agreed with the Federal Circuit that the FDA exemption does not extend all the way down the chain of causation leading to the filing of an FDA application.

However, the government asked the Court to hear the case because of language in the Federal Circuit opinion suggesting that preclinical experiments may be categorically ineligible for the FDA exemption and statements suggesting that experiments relating to the selection of a drug compound among several candidates are similarly excluded as a matter of law. Ironically, Integra agreed that preclinical experiments are potentially eligible for the exemption, as did the trial court, so that as to that important issue, there was no dispute between the parties.

Drawing a bright lineIntegra v. Merck KGaA was the only patent case heard by the Supreme Court in this year’s ses-sion, which has just ended. A decision, expected early this summer, will likely hold that preclini-cal experiments are potentially eligible for pro-tection under the FDA exemption, as agreed by the parties and the government. However, it is an open question whether the decision will go further to clarify the scope of the exemption.

Many commentators have expressed the hope that the Supreme Court will articulate a ‘bright line’ test for application of the FDA exemption, so as to achieve greater predictabi-lity for companies performing basic research.

However, such an outcome appears unlikely. The test established by Congress—whether the infringing experiments are “reasonably related” to the development and submission of infor-mation relevant to the FDA process—neces-sitates a case by case determination based on all relevant facts and circumstances.

Such a reasonableness test, which looks to the unique circumstances of each case, is well known in our system of law. To give just two examples, the legality of police searches and seizures is determined under a “reasonable-ness” standard that requires consideration of the totality of the circumstances of each unique case. In addition, consideration of what a “rea-sonable man” would do in the same situation provides the standard under which most neg-ligence claims are decided. Thus, in adopting a “reasonableness” test, Congress affirmatively rejected a bright line approach. In general, the Supreme Court is hesitant to define hard and fast rules in an area where Congress has refused to do so.

The exemption and research toolsSeveral parties who submitted amicus, or ‘friend of the court’ briefs, including a group of universities and research institutions, asked the Supreme Court to address the issue of the FDA Exemption as it applies to biomedical ‘research tools’—platform technology used to design or identify potentially useful compounds. Although, on its face, the FDA Exemption can be used to shield “any patented invention” from otherwise infringing activities, the history and context of the FDA Exemption supports an argument that it does not apply tool patents.

Exempting infringement of tool patents would not cure the patent term distortion resulting from lengthy FDA approval, the limited purpose for which the exemption was enacted. Moreover, by effectively eliminating the value of an entire class of patents, it would contravene Congress’s stated goal of avoiding impinging on patent rights beyond what is nec-essary to accomplish this limited purpose.

Also, the FDA Exemption can be viewed as keyed to the scope of the patent term extension provision that was enacted at the same time as part of the Hatch-Waxman Act. Allowing pat-ents covering drug products to be extended by the time it takes for FDA review was an essential part of the legislative compromise under which Congress exempted FDA-related activities that would otherwise constitute pat-ent infringement. Given that tool patents by definition do not cover products that require FDA approval, and therefore are not eligible for patent term extension, they should not be impeded by allowing them to be infringed without compensation.

Box 1 To license or not to license?

The Integra v. Merck KGaA case will have several possible implications for biotech company licensing strategy. In most cases, it will be relatively clear whether the FDA exemption applies to preclinical experiments. It would not, for example, apply during discovery research before there has been a decision to focus on the development of a particular drug. In contrast, it would clearly apply to experiments on approved animal models performed under Good Laboratory Procedures (GLP), as defined by the FDA that support the decision to begin human clinical trials. In between those poles, the Integra v. Merck case should give drug developers reason to seek a license where they sponsor non-GLP research by another institution, arguably for non-FDA purposes, while performing the FDA work in house.

In every situation, however, drug developers should keep in mind the possibility, suggested by the government, that the exemption does not protect activities that infringe a ‘tool patent.’ A likely definition for a tool patent is one that claims that a product or compound is useful for drug identification or development, but which does not cover the approved drug product itself. Prudence would dictate seeking a license to use tool patents in every situation.

Damages for infringing a tool patent would be calculated based on the reasonable royalty agreed upon in a hypothetical negotiation between reasonable parties; such hypothetical negotiations are typically conducted by warring economists hired to testify as expert witnesses at trial. The availability and cost of non-infringing alternatives is a key component, usually setting the upper limit to a reasonable royalty calculation. However, where no non-infringing alternative is available, and use of the research tool is critical to drug development, the damages that could be incurred for infringement by basic research are potentially very large.

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NATURE BIOTECHNOLOGY VOLUME 23 NUMBER 6 JUNE 2005 661

While this issue is of course of great impor-tance to academia and the biotech industry (see Box 1), it is unlikely to be addressed in the Integra v. Merck KGaA case because is was not raised in the trial court. It is worthy of note, however, that the government brief sug-gested that Congress may not have intended the FDA exemption to shield research from infringing tool patents. Ultimately, this issue may remain the most important one for the Court to decide in some future case.

A final clarifying ruling?It is unlikely that the Supreme Court will opine on the more general policy question of whether all biomedical research should be exempt from against patent infringement,

an issue raised by amici concerned that the threat of patent infringement would seri-ously extend the time and cost of developing new drugs. In enacting the FDA Exemption, Congress balanced the rights of patent hold-ers against the need to prevent the patent term distortion caused by FDA review—Congress did not balance the rights of patent holders against the social utility of allowing biomedi-cal research to proceed unencumbered by the patent laws.

If Congress had determined that the impor-tance of biomedical research required that it was allowed to proceed unimpeded by patent rights, there would have been no logical reason for it to limit the exemption to activities reason-ably related to the development and submission

of information under a federal law regulating drugs. Indeed, the legislative history of the FDA Exemption is replete with Congressional statements reflecting its concern that adverse impacts on patent rights and the incentive they provide for innovation be minimized.

The Supreme Court is likely to be sensitive to the limited purpose of the FDA Exemption and the importance of the patent rights as an incentive to innovate. Until and unless Congress clearly and unambiguously decides otherwise, it likely will remain United States law that, with the limited exception of the FDA exemption, the need to reward innova-tion by enforcing the patent laws is as impor-tant in biomedical research as it is in every other field.

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