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Backgrounder On Patenting Gene-Based Inventions

WASHINGTON, DC (March 15, 2000) In response to the statement March 14 by President Bill Clinton and British Prime Minister Tony Blair and subsequent reaction of investors on Wall Street, the Biotechnology Industry Organization today issued the following backgrounder on the U.S. Patent and Trademark Office's (PTO) patent guidelines regarding gene-based inventions:

The PTO policy regarding the standards for patenting genes,expressed sequence tags (ESTs) and single nucleotide polymorphisms (SNPs) is well established. Many patents have been issued for these inventions. The PTO currently is considering new guidelines on the standards for these patent applications.

The PTO's draft proposal is accompanied by thirty specificexamples of how the guidelines would be implemented. Comments on the draft proposal and examples are due March 22. The biotechnology industry -- including therapeutic, diagnostic, and genomic companies -- will support the PTO draft and make only minor recommendations for editing. It is expected that the academic community will largely support the guidelines with some debate focused on a few of the draft examples.

There is no proposal from the PTO, the National Institutes ofHealth (NIH), the White House or any other Executive Branch agency to limit or modify the patentability of genes, ESTs or SNPs. No such proposal was made in the joint statement March 14 by Clinton and Blair.

There is no legislation pending in the Congress on this subject norhas any legislation on this subject ever been introduced. The Congress has never held an oversight hearing or any other hearing on this subject.

A patent on a gene, EST or SNP does not confer ownership of theinvention to a company or university. The patent protects their invention from theft by a second company or university engaged in commercial activity.

Patents are not granted on raw fundamental gene, EST or SNPsequence data. A patent is granted only if the research discerns the role of the gene, EST or SNP in human health or another potential commercial application. No one can run a machine and generate a patentable invention. Patents are granted for the value that is added by the researcher, not on the raw sequence data.

A patent has no impact on an academic researcher not engaged in commercial activity. Scientists engaged in academic research are totally free, without any fear of infringement actions, to conduct research on any patented invention. These researchers are protected from a patent infringement action by an "experimental use" exemption because they are not competitors with a commercial motivation.

NIH and NIH-funded grantees have entered into a broad array of research agreements and licenses. These agreements and licenses typically provide that intellectual property generated by NIH and NIH-grantees is licensed or sold to biotechnology and pharmaceutical companies in exchange for royalty payments on any sales.

Central to these relationships are patents which ensure that the results of the university and industry investments are not misappropriated by those who did not make the investments. Without patent protection no company can persuade its investors to put their capital at risk and NIH and its grantees would have nothing to license. The patentability of inventions is determined by the PTO.

Universities have filed more than 3,000 patent applications on their inventions with expectations they could generate revenues in the form of licenses and royalties. The availability of patents - which grant an inventor 17 years of protection from competitors - leads to an intense competition in the development of life-saving drugs, biologics and devices. Patients in need of new medicines and devices are the beneficiaries of this competition.

Licenses can be exclusive or non-exclusive (i.e. sold to one or more than one entity). Each type of license may be appropriate depending on the circumstances. About 10 percent of NIHƒ­s licenses are exclusive. Academic researchers not engaged in research for commercial use are not affected by the existence of an exclusive license.

The Association of University Technology Managers Licensing Survey, FY 1996, found that universities executed 2,198 licenses and options, of which 1,127 were exclusive (51 percent) and 1,071 were non-exclusive. U.S. hospitals and research institutes executed 276 licenses and options, of which 149 were exclusive (54 percent) and 127 were non-exclusive.

Canadian institutions executed 206 licenses and options, of which 144 (70 percent) were exclusive and 62 were non-exclusive.

An exclusive license gives a company a greater incentive to invest its resources in the development of the technology and this means that the companies are able and willing to pay a higher royalty rate to the NIH or grantee. Exclusive licenses are particularly appropriate in cases where substantial risk and expense are involved in developing basic research into a product for the market.

NIH receives approximately $40 million (1,000 licenses) and its grantees approximately $300 million (5,000 licenses) in royalties from its licenses to biotechnology and pharmaceutical companies. This income helps to fund additional research.

Leading grantee recipients of royalties include the University of California system ($63 million), Sloan Kettering ($45 million), Stanford ($43 million), Columbia University ($40 million), City of Hope National Medical Center ($30 million), and New York Blood Center ($23 million).

Separate from licensing royalties, industry sponsored $1.5 billion in research at U.S. universities, hospitals and research institutes. The overwhelming portion of this research is biomedical, such as conducting clinical trials, including $41 million at Massachusetts General Hospital and $26 million at the Mayo Clinic. This income is vital to the biomedical research efforts of these institutions.

These technology partnerships have led to the founding of 1,169 companies from NIH and university-based research since 1980.

These technology partnerships and the patents on which they are based are particularly important to small biotechnology companies. These companies focus their research on breakthrough technologies that come from basic biomedical research. They also must have strong patent protection to justify the risk they take. Most of these companies have no revenue from product sales to fund research. They depend on venture capital and public market investors. The biotechnology industry as a whole lost $4.7 billion last year. It has lost similar sums throughout its existence and has never had a profitable year.

Below is an excerpt from the Clinton-Blair statement and comments from public officials about the joint statement.

Joint Clinton-Blair Statement to ensure discoveries from the human genome are used to advance human health:

"Intellectual property protection for gene-based inventions willalso play an important role in stimulating the development of important new health care products."

Statement of Q. Todd Dickinson, commissioner of Patents and Trademarks (For additional information contact Commissioner Dickinson; 703-305-8600):

"...nothing has changed on patent law. There is no reason these stocks should have gone down."

Bridget Quinn, Patent and Trademark Office:

"We haven't changed any policies. The President's statement doesn't change anything at the patent office -- anything that was patentable yesterday is today. There have been no changes in the Patent Office's policies regarding gene patents."

Rachel Levinson, Office of Science and Technology Policy (For more information contact Levinson; 202-456-6137):

"Nothing in the statement challenged existing patent law"...She said she was "very concerned and upset" about the reaction on Wall Street.

Kathy Yarbrough, NIH Human Genome Project:

"This has nothing to do with patenting of genes and it does notrepresent a change in policy or procedures or the way the public (Human Genome) consortium does business. It is a very strong and impressive gesture of support for the principle of providing public access to the raw sequence data. It is not a position on patenting. The Patent and Trademark Office ruled last December that raw sequence data that comes off a machine isn't patentable -- this is a statement of support for that position."