The Intellectual Property Problems of Genomics Companies
by John Prince, Ph.D.
A major breakthrough in human self-understanding is in progress. Not a week passes without an important advance in the science of human genetics. Investors have formed many new "genomics" biotechnology companies to take advantage of these advances. Unfortunately, these companies are being snarled by difficulties in intellectual property law.
The story begins in 1991, when a laboratory at the National Institutes of Health (NIH) headed by Craig Venter applied for a patent on thousands of partial gene sequences called expressed sequence tags (ESTs). (California Western School of Law is fortunate to have Ned Israelsen, who prosecuted the NIH application, as its patent law professor.) The laboratory had discovered, isolated, and identified the ESTs in the course of a research program in human genetics. To be patentable, the ESTs had to be new, useful, and nonobvious inventions. 35 U.S.C. ßß 101-103. The NIH application caused a great public debate about (1) whether the ESTs were "inventions," and (2) whether the ESTs, whose biological function was unknown, were "useful."
Even though Supreme Court has held that DNA sequences are patentable, the Patent and Trademark Office (USPTO) rejected NIHís application in 1993. The USPTO said the NIH had not explained how the ESTs were "useful." The director of NIH, as a matter of public policy, decided not to appeal.
As a result, a major unresolved issue for the biotechnology industry is just how much biological data on the function of a DNA sequence is needed to obtain a patent. Applications based on whole genes whose function is well-known stand the best chance of being awarded patents, but genomics companies with big investments in gene fragments continue to argue the case for EST patents.
This uncertainty about patentability of ESTs is only part of the problem for genomics companies. They also face the risk of losing the value of their genetic data because of the decision by major compilers of the data to release it to the public.
One of these compilers is The Institute for Genomic Research (TIGR). Dr. Venter left the NIH in 1992 to form this nonprofit company. TIGR was associated with the for-profit company Human Genome Sciences Inc. (HGS), and a ten-year $85 million grant from the pharmaceutical company SmithKline Beecham (SB) backed the entire project. Between 1992 and 1996, TIGR and HGS launched a factory-like effort to sequence gene fragments. HGS applied for scores of patents on ESTs. But TIGR wanted to publish the data.
Last fall, SB gave notice that it wanted out in April, 1997. TIGR then decided to end its part in the agreement, open the database to any and all users without contractual restrictions, and add full-length genes to it. When TIGR releases this data, approximately 80% of all human genes will be available in public databases. Why would TIGR want to make its data freely available? Because the NIH and the Department of Energy will award more than $20 million in research grants for the "Cancer Genome Anatomy Project," an outgrowth from the Human Genome Project. These agencies are making quick release of data a condition of their grant awards.
HGS is now in the difficult position of having invested millions of dollars to obtain genetic data that could lose its value. The data could lose value for three reasons. First, if TIGRís data is public, it cannot be held as a trade secret. Second, HGS might not be able to obtain patents on published DNA sequences, either because they are not novel or because they are obvious.
Third, USPTO procedures make the patenting of ESTs difficult. HGS and other genomics companies have claimed DNA fragments covering most of the genes in the human body. A mass of recent patent applications try to lay claim to thousands of genes. At least 350 patent applications, covering more than 500,000 gene tags, are pending at the USPTO. The largest single application contains 18,500 sequences. To reduce the backlog of EST patent claims, which could take the entire USPTO biotech staff years to sort through, the USPTO issued a ruling last October that no application may contain more than ten DNA sequences. Companies will now have to file thousands of new applications, at $400 to $800 an application plus legal fees, to maintain all their current claims.
By ending its agreements, TIGR will forfeit some funding from HGS and SB. HGS insists that it is still entitled to preview and patent TIGRís discoveries. TIGR argues that if it accepts the NIH grants, federal policy takes precedence. HGS disagrees and says TIGR may not accept grants that are "not consistent with" HGSís proprietary rights in TIGRís work. The quarreling continues.
Even if TIGR walked away from its agreement, HGS would find it difficult to prove what damages TIGR owes it. Since the TIGR/HGS agreements were signed, many academic scientists, journals, and funding agencies deposited genetic data in public databases. These databases have undermined the value of private EST databases amassed by HGS and other genomics companies. More recently, the pharmaceutical company Merck and Co. has funded a public collection of 450,000 ESTs (i.e., the DNA itself) to bypass the restricted access to the genetic data of private firms (esp. SB firms). If the genetic data is no longer secret and cannot, for whatever reason, be patented, what are the damages to HGS?
The problem for genomics companies is that the rapid progress in release of DNA data is quickly limiting the opportunity to capitalize on gene discoveries. Obtaining gene patents or keeping trade secrets will become all the more difficult once the entire human genome sequence is in the public domain. Genomics companies will need to find different ways to realize their investments that do not depend on property rights in the human genome.
Several articles in Science, Feb. 7, 1997, provide further discussion of these issues