Friday, February 08, 2008

NBT Article on Supreme Court and Licensing Power

The issue of gene patents is a central concern for a theory of genetic justice. The regulatory framework a society implements for intellectual property rights will have a profound impact on the pace and shape of innovation, as well as the distribution of the potential benefits and burdens of biomedical research.

My earlier post on the "Google Alerts" for gene patents helps give one a sample of some of the complex legal and social issues that arise in this context. And my forthcoming paper "Gene Patents and Justice", which should be out in the next issue of The Journal of Value Inquiry, attempts to bring to the fore some of the complex empirical concerns that arise in this context. And these empirical concerns muddy the water for conceptual normative analyses of IP.

The latest issue of Nature Biotechnology has a very useful piece by Jennifer Giordano-Coltart and Charles Calkins entitled "Recent Supreme Court decisions and Licensing Power". They focus on two recent Supreme Court decisions- eBay Inc. v. MercExchange and MedImmune, Inc. v. Genentech, Inc. These decisions effectively reveal (1) how intricate and complex IP law can be and (2) how judicial decisions on such issues can impact (for better or worse) research. Here is a sample from the Nature Biotechnology article:

Perhaps more so than in any other area of business, intellectual property, particularly patents, is the key asset of companies in the pharmaceutical and biotechnology industries. Universities, emerging pharmaceutical and biotechnology companies, and the research and development units of larger pharmaceutical and biotechnology companies protect their investments in research, and their investors, by filing for patents. Companies' stock prices rise and fall on the issuance and expiration of patent rights. Market share and selling price—and therefore a company's profits—for pharmaceutical products are maintained and protected against generic competition during the lives of patents covering the products.

Like other forms of property, the rights granted by patents can be sold or exchanged between and among companies through legal contracts, referred to as licenses. Universities can license their patent rights in their research to life science companies that will attempt to develop commercial products from the research. Emerging life science companies may license their small- or large-molecule platforms to joint venture partners to collaborate on clinical trials and commercialization. Life science companies of every size seek to in-license product lines for commercialization and to out-license product lines that do not fit within their current market strategy. As a result, licenses have a major role in the pharma and biotech industries.

....The legal landscape, however, was altered by the Supreme Court's decision in eBay Inc. v. MercExchange, LLC1. The Court held that a patentee should be entitled to a permanent injunction only if it satisfies the traditional equity-based test for injunctive relief by showing that (i) it has suffered irreparable injury; (ii) the remedies available at law, such as money damages, are inadequate to compensate it for the injury; (iii) the balance of hardships between the patentee and the infringing party favors an equitable remedy; and (iv) the public interest would not be disserved by an injunction.

In altering the almost automatic standard for injunctive relief, the Court decreased the leverage of a patent holder during licensing negotiations, as potential licensees can now worry less about being enjoined. The Court did recognize a difference between patentees who practice their patented technology and those who do not, finding that it would be more likely that patentees who practice their technology would be able to meet the standard for injunctive relief. Fortunately for universities and emerging technology companies, the Court further recognized a need to differentiate between those patentees who do not practice their invention because of inadequate capacity or insufficient capital, such as independent inventors or university researchers, and patent trolls who exist solely to license their technology to those who are already using the technology in the market place as a means of extracting fees. A critical distinction between these types of patentees is that the former are using licensing programs toward the goal of developing their inventions into marketable products, and use their patents as a shield to protect their right to exclude, market share, reputation, goodwill or name recognition, whereas the latter use their patents as a sword, seeking only to maximize fees from market participants.

....The recent Supreme Court cases eBay and MedImmune interject both reassurance and uncertainty into the present scheme of patent licensing, the latter of which will need to be addressed in future negotiations. Because of the uncertainty raised by these cases, it is unclear whether these decisions, particularly MedImmune, will really benefit either party in achieving the desirable win-win license agreement. On the front end, MedImmune seems to have eliminated the finality of a negotiated agreement, which changes the dynamics of the negotiations and potentially makes the entire labor-intensive program fruitless, while on the back end the decision may lead to iron-clad contracts that may result in more onerous circumstances than would have arisen from just breaching the licensing contract before MedImmune. Now, with the dispute in Quanta, the patent community is waiting to see how much control licensors will be able to exert on the downstream uses of their technology. Over time, courts will determine which terms licensors may impose on licensees and, hopefully, the result of this process will be stronger patents that can be marketed effectively as useful products and services, as was the original intent of the patent system.