Thursday, September 15, 2005

Fortune on Bayh-Dole: a litigious scrum of data-hoarding and suspicion

Of a Bayh-Dole benefit to Emory University:

The deal in question had closed only days earlier, when a pair of biotech companies, Gilead Sciences of Foster City, Calif., and Royalty Pharma of New York City, outbid several other parties for Emory's roughly 20% stake in the powerful anti-retroviral drug Emtriva, which is used to treat HIV. The drug was developed more than 15 years ago by three of the university's scientists, working on federal research grants, but received FDA approval only in July 2003. Now, however, Emtriva (a modest seller in its own right) was being married to another antiviral in a single pill. The combination drug, called Truvada, was expected to have a worldwide market of nearly $1 billion in 2006. Emtriva was becoming a blockbuster. Citigroup set up the auction and hammered out the terms with bankers from Lazard. A white-shoe law firm, Covington & Burling, calculated the drug's projected royalty streams through the year 2021, when the patent life was scheduled to end. [presumably, the patent is on the combination]

The hard work was over, and now it was time for a champagne toast and a brief "end-zone dance," as president Wagner described it. In a short while they could start thinking about how to reinvest their windfall—around $320 million after fees and the 40% cut that belonged to the three Emory inventors. The cash would enhance Emory's leadership in AIDS-vaccine research—and help Wagner's plan to turn the university into a top-tier "destination" school. "This is just such a win-win-win story," Wagner says jubilantly. "We have an invention here that addresses a real international scourge, and we are now taking these resources and reinvesting them in American research and education. It's a pretty happy story."

That equation still holds, with the conspicuous exception of medical research. In this one area, something alarming has been happening over the past 25 years: Universities have evolved from public trusts into something closer to venture capital firms. What used to be a scientific community of free and open debate now often seems like a litigious scrum of data-hoarding and suspicion. And what's more, Americans are paying for it through the nose. Let's go back to Emtriva for a moment. Raymond Schinazi, a virus specialist at Emory, got the idea for the drug after hearing a lecture by a Canadian researcher, Bernard Belleau, at a 1989 AIDS conference in Montreal. Belleau had discovered a compound that helped shut down the virus's genetic machinery, and Schinazi soon realized that with some chemical wizardry, the substance could be transformed into something far more potent. Thanks to a bit of "serendipity," Schinazi says, he and two Emory colleagues were able to do just that: create a compound that may be orders of magnitude more active than Belleau's. In the end, the difference between the two substances came down to one atom of fluorine. It's a perfect example of how one inspiration can build on another.

This combination of open exchange and fervent competition between great researchers helps bring about scientific advances. And when the system works, the sum of each contribution is greater than the whole. But what happened next in the Emtriva saga was a race to the patent office. Emory got there — a week.

That filing in 1990 triggered a morass of lawsuits over Emtriva and a related compound. Belleau's biotech employer sued; so did pharmaceutical giant Glaxo Wellcome (now GlaxoSmithKline), which had licensed what it thought was Belleau's discovery. Emory found itself embroiled in litigation that a veteran patent attorney called the most complex he'd ever seen. (One federal case had 36 individual "lead attorneys.") Emory's squadron of lawyers not only had to fight through those cases but also skirmish through four long challenges at the U.S. Patent & Trademark Office (USPTO) and repeat those battles in Europe, Australia, Japan, South Korea, and Canada. All told, the disputants wrangled on for nearly a decade and a half and consumed millions of dollars in attorney's fees.

From 1992 to September 2003, pharmaceutical companies tied up the federal courts with 494 patent suits.

At the time of Bayh-Dole, the gospel of the U.S. government, or at least of the longtime Democratic majority in Congress, was that if the government paid for it, the taxpayers owned it. That was the thinking that drove some of the nation's proudest achievements—the splitting of the atom, the development of antibiotics, the moon shot, and the nuclear Navy. Bayh sought to turn that policy on its head, essentially giving away all this taxpayer property for free—and, some worried, creating potentially thousands of new private monopolies in the process. It was a heretical view (for a liberal, no less), but Bayh was convinced that government ownership was squashing innovation and the nation's productivity.

Roughly a third of the new discoveries and more than half of all university licensing income in 2003 derived from just ten schools—MIT, Stanford, the usual suspects. They are, for the most part, the institutions that were pursuing "technology transfer" long before Bayh-Dole.

In 2001, economists Richard Jensen from Notre Dame and Marie Thursby of the Georgia Institute of Technology published a survey of university licensing activity over a five-year period in the 1990s. They asked administrators and faculty researchers at 62 universities, "What's the most important outcome of technology transfer?" The top answer by far given by university officials was "revenue." Yes, it was nice to see important discoveries commercialized and the knowledge disseminated as widely as possible. But hey, we're in this for the money.

That certainly seemed to be the message in a recent court case involving Columbia University. Last year Columbia threatened to revoke the licenses of several leading biotech and pharmaceutical companies for the use of a critically important process in drug discovery and development called co-transformation. (The companies sued, and the cases ended up in a federal court in Massachusetts.) In the late 1970s three Columbia researchers, Richard Axel, Michael Wigler, and Saul Silverstein, all working with funding from the NIH, figured out a way to vastly improve the efficiency of a technique used in genetic engineering. They filed for patents in February 1980—prior to Bayh-Dole. But the NIH assigned the title to Columbia once the university promised to "use all reasonable effort to bring the [Axel patents ] to the commercial market through licensing on a non-exclusive, royalty-free, or reasonable royalty basis." The federal agency even admonished Columbia not to engage in "repressive" licensing practices.

But when the patent life ran out, Columbia announced that—surprise—it had secured a new patent, issued in 2002, that won't expire until 2019. (The patent application was filed in secret in 1995.) And the invention, as it turns out, comes out of the original taxpayer-funded work done by Axel, Wigler, and Silverstein long ago (and somehow not included in the three patents Columbia had already received). University lawyers had pulled off the trick by filing a secret "continuation" application (which keeps an original patent disclosure alive for possible new claims to be added) and then abandoning it—repeating this procedure again and again until the clock was about to run out. So the patent granted in 2002, noted federal district court Judge Mark Wolf, "relates back to its great-great-great-great-great-great-grandparent application" in 1980. [note: this is the thing Lemelson did that led to prosecution laches in the Symbol case] The aim of this new "submarine" patent, says Boston attorney Donald Ware, who represented several of the plaintiffs, was to enable Columbia to surface with a claim "covering new advances the biotechnology industry had made during the intervening years." By delaying their filing as long as possible, they could get many more years of patent protection. And revenue, of course.

But Columbia managed to file two final applications on June 7, 1995—the day before the new law was to go into effect. When Judge Wolf indicated he was inclined to rule in favor of the plaintiffs, Columbia promised it would no longer attempt to charge the companies a licensing fee. (The case was then dismissed.)

No one at Columbia University would speak on the record about the Axel patents. The university's outside counsel, David Gindler, of the Los Angeles firm Irell & Manella, insists the school did nothing improper. "I don't think Columbia had a strategy to do anything other than get the full patent protection to which it's entitled," he says. "Universities should be able to get the same thing that companies get." Gindler elaborates: "It's perfectly proper for Columbia to do what any of the other biotech companies would do—to request companies take licenses to the patent and pay a reasonable royalty."

Stanford Law School professor emeritus John Barton notes, in a 2000 study published in Science, that the indicator that correlates most perfectly with the rise in university patents is the number of intellectual-property lawyers. (Universities also spent $142 million on lobbying over the past six years.)

The U.S. contribution to global knowledge has been stagnating. While the number of journal articles produced by American researchers has risen slightly since 1988, the rest of the world has raced ahead.

How could a law with so much intuitive promise to liberate research and boost productivity have the opposite effect? You can put part of the blame on the nation's patent policies—which began their own strange evolution at the same time as—you guessed it—Bayh-Dole.

The truth is that even if some skittish VCs stay home, the science will get done. In other words, Bayh-Dole has served mostly as a nervous mother for a science that never needed one. New biomedical discoveries are now coddled and kept out of the rain—and it's hurting progress. The right to make a profit from a taxpayer-funded discovery should come with an explicit demand: The patent holder has to license the invention as broadly as possible—which would make exclusive deals the rare exception, not the rule. The fact is, the right people will always find a way to turn a good idea into something tangible.

[The article by Lifton Leaf did not mention MIT's acceptance of money from the Lemelson foundation.]


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