Australasian Biotechnology (backfiles) AusBiotech ISSN: 1036-7128 Vol. 12, Num. 2, 2002, pp. 35-36

Australasian Biotechnology, Vol. 12 No. 2, 2002, pp. 35-36

Biotechnology Legislation

AN INVITATION TO PARTICIPATE IN AN INQUIRY: ASSIGNMENT AND LICENSING OF BIOTECHNOLOGY PATENTS

Dianne Nicol and Jane Nielsen

Law School University of Tasmania, GPO Box 252-89, Hobart, Tas 7001. Email: Dianne.Nicol@utas.edu.au

Code Number: au02014

Abstract

Patents are becoming an increasingly important asset for biotechnology companies. At the same time the patenting of vital technologies is tying up areas of research. The authors are in the process of compiling data on patent assignment and licensing activity in the Australian biotechnology industry and seek input from industry participants on their experiences in this area. ¹

Introduction

One of the essential means whereby participants in the Australian biotechnology industry can derive economic benefits from their research efforts is through strategic management of their intellectual property (IP), particularly their patent portfolios. Indeed, adequate IP management is generally recognised as being crucial to commercial success. However, concern has been expressed by Biotechnology Australia and others that although Australians have been highly successful at basic research they have not been successful at commercialising that research. ²  Biotechnology IP generated in Australia is often sold off (assigned) or licensed out overseas on terms that fail to provide adequate rewards to the Australian industry. At the same time, Australian biotechnology researchers may have to enter onerous licensing-in agreements to get access to patented techniques and products owned by others.

Inquiry into Licensing and Assignment Activity

Biotechnology Australia, the Australian Vice Chancellors Committee and the National Health and Medical Research Council all have policies to improve IP management in Australia. However, inappropriate patent assignment and licensing may be one of the greatest barriers to continuing research, entry to markets and poor commercialisation of inventions. Measures need to be in place to ensure that the Australian industry is able to develop and capitalise on its innovative capacities. To date, there has been no analysis of the extent to which assignment and licensing activity is being undertaken by Australian core biotechnology companies, and the impact this is having on the commercial success of those companies. The challenge is whether the current legal arrangements are satisfactory, and if not, the extent to which they will need to be reformed. Restrictions on the use of biotechnology patents may need to be considered, particularly in relation to licensing.

This project aims to provide a mapping of the structure of the Australian industry, in considerably more depth than has previously been attempted. A number of government-sponsored reports have provided overviews of the state of the biotechnology industry in Australia. For example, Ernst & Young and Freehills recently published the second Australian Biotechnology Report, in which they undertook an overview of the Australian biotechnology industry primarily on the basis of survey evidence. However, to date no study has attempted to map comprehensively the framework of the industry focusing on patent assignment and licensing activity and how this affects the performance of the industry.

The focus of this inquiry is as follows:

• whether and in what circumstances licensing in of patented technologies or products has been refused, forcing companies to cease particular aspects of their research work;
• what general terms and conditions are contained in licences entered into by Australian companies for the purposes of obtaining access to patents held by others;
• whether Australian companies have
• the capacity to commercialise their own IP, or have to assign or license out their IP rights;
• the extent of assignment and licensing out of IP held by Australian biotechnology companies, types of partners and royalty arrangements;
• what general terms and conditions are contained in licences entered into by Australian companies for the purposes of commercialising research.

The methodology for this inquiry includes:

• accessing and compiling publicly available data. Sources include company websites, the ASIC and Australian Stock Exchange databases, trade journals, etc;
• requesting industry participants to participate in a survey asking brief questions about licensing and assignment activity; and
• interviewing a small number of industry participants.

Over the next year, the authors intend to compile this data and hope to discuss these issues with participants in the Australian biotechnology industry. We would be grateful to receive any comments in relation to this inquiry. All information received will be treated as confidential. The authors intend to use the information to ascertain trends in the industry and will only refer to specific cases with consent.

This inquiry will provide data from which an assessment can be made as to the extent to which Australian companies enter into assignment and licence agreements that may not be in their best interests or in the interests of the Australian industry as a whole. The question that the authors seek to address is whether the Australian industry (both through patents themselves and through assignment and licensing agreements) is operating as a branch office of the major overseas companies or is establishing itself as a specialised niche market.

This foundational information will allow examination of fundamental regulatory questions about how Australian government policy on commercialisation of biotechnology can be implemented. The legal issues that will be examined include:

• the current interpretation of patent law requirements in the context of biotechnology and the extent to which biotechnology patents impact on research and development;
• the current system of contractual assignment and licensing in Australia and the extent to which assignment and licensing agreements create rights and obligations that extend beyond the strict confines of the statutory rights granted by patent law;
• the relationship between intellectual property law and government regulation of the biotechnology industry.

The Importance of Biotechnology Patents
An effective patent system is crucial to the biotechnology industry because it provides the incentive to invest in research and development. Patents provide a 20-year monopoly, during which the patent holder has exclusive rights to exploit the patented invention, and to license others to exploit it. In this way patents encourage industry to take inventions through to the stage of commercial application and to undertake further innovation.

The pharmaceutical and agricultural industries both have a long tradition of exploiting research innovations through patents. it probably goes without saying that every new drug on the market will have patent rights attached to it. The emerging medical and agricultural biotechnology industries have followed this lead and expanded on it by forcing patents upstream, into the traditional domain of basic research, formerly characterised by free access to research results. This trend has been subject to some criticism, particularly in relation to patenting of gene sequence data. ³ There is no doubt that patent activity in this area has reached astronomical levels, ⁴  and that this, in itself, is creating administrative problems for patent offices around the world.

Nevertheless, it is generally acknowledged that patents have an important role to play in sustaining the biotechnology industry. Gene-related patents and other biotechnology patents will continue to be granted in Australia unless there is a fundamental change in patent law, either through the courts or the legislature, neither of which seems likely. To date, the courts have been given little opportunity to consider the patentability of biotechnological inventions. ³ The Federal Parliament was given the opportunity to consider this issue in 1996, when Senator Stott Despoja introduced a Private Member's Bill to amend the Patents Act 1990 (Cth) to exclude gene sequence information. ⁶  However, the Bill was never debated.

The one common trend that is emerging around the world is that raw sequence data is not patentable. In the US, for example, new utility guidelines require that patent applications demonstrate specific, substantial and credible utility of the claimed invention. ⁷ This requirement will be met for gene sequence patents if the function of the sequence is disclosed. The European Biotechnology Directive ⁸  states that industrial applicability for gene patents requires the applicant to specify which protein or part of a protein is produced by the sequence or what function it performs. Similarly, the Australian Patent Office considers that patentable subject matter includes DNA and genes "which have for the first time been identified and copied from their natural source and then manufactured synthetically as unique materials with a definite industrial use". ⁹

Patents are a fact of life for the Australian biotechnology industry and it is important that appropriate procedures are in place to deal with them. A patent is a statutory bargain between the patentee and the public; not only does the patentee have an obligation to exploit the patent, but also to exploit it within the bounds of the grant. However, although patents are required to be registered, there is no requirement in Australian law for patent assignment and licensing agreements to be registered. These agreements are contractual in nature and ate regulated by common law contractual principles. In contrast to patent law, contract law is based in private law, focusing on the rights and obligations of individuals in respect of each other rather than on benefit to the Australian community as a whole. In practice, the ways in which patents are used and the terms on which they are assigned or licensed are subject to few legal restrictions. Industry participants have to carefully consider two aspects of patent management:

• how they will exploit their own patents; and
• how they will access technologies and products that are patented by others.

Exploitation of Patents: Assignment and Licensing Cut
Once a patent has been granted, a patentee may choose to seek venture capital to conduct the necessary follow-on research and development to commercialise the invention itself or alternatively may choose to assign or license the patent to another company. A number of issues relating to the ability of the Australian industry to commercialise its downstream research have been identified. Necessity dictates that many biotechnology companies in Australia assign or license their patent rights to larger biotechnology or pharmaceutical companies. This often gives rise to strategic alliances or even merged entities. in most cases, international business partners will be sought because they are better resourced. The problem this presents for the Australian industry is that the benefits from biotechnology research in Australia may flow offshore.

Access to Patented Technologies and Products: Licensing In
Broad upstream patents granted in Australia and other jurisdictions could compromise the major biotechnology markets of the world if they are used to deny access to essential upstream research tools and technologies. ¹⁰ This has economic implications for the Australian industry because many Australian researchers and biotechnology companies operate primarily in the downstream end of the research continuum. The fact that 9& per cent of biotechnology patents filed in Australia ate held by foreign companies compounds this problemiil Negotiation of licence agreements is essential in order to ensure that Australian companies have freedom to operate, that is, to conduct downstream research without infringing upstream patents. Patentees may refuse to license or may license on terms that guarantee them benefits broader than the rights granted to them under patent law.

1. The authors gratefully acknowledge the support of the University of Tasmania for this project through its Institutional Research Grants Scheme.
2. Biotechnology Australia, Developing Australia's Biotechnology Future: Discussion Papei' (Canberra: AGPS, 1999) at 24.
3. See Michael Heller & Rebecca Eisenberg, "Can Patents Deter Innovation? The Anricommons in Biomedical Research" (1998) Science 280: 698.
4. See, for example, Gavin Reechia, "Who Owns Your Genes? The Future of Gene Patents' (2001) Australasian Biotechnology 11: 33; Dianne Nicol and Jane Nielsen, The Australian Medical Biotechnology Industry and Access to intellectual Property: Issues for Patent Law Development" (2001) Sydney Law Review 23: 347.
5. In the most notable case to date, GeneticslnstitutelncvKtrtn Amgen Inc (No 3) (1998) ALR 156: 30, HeereyJ gave an expansive interpretation of the description requirements in validating a patent involving the use of recombinant DNA technology to produce erythropoetin.
6. The second reading speech to the Bill appears in Senate, Hansard Parliamentary Debates 27 June 1996, 2332.
7. Federal Register, 66(4) January 5 2001 Notices at 1092.
8. Directive 98 44/EC On The Legal Protection of Biotechnological Inventions.
9. IP Australia Australian Patents/or: Microorganisms; Cell Lines; fly bridomas; Related Biological Materials and Their Use; and Genetically Manipulated Organisms (Canberra AGPS, 1998).
10. See Nicol and Nielsen, above n3.
11. See Nicol and Nielsen, above n4. received 8 January 2002, revised 28 March 2002

The authors are interested in receiving comments on any experiences that industry participants have had in relation to patent licensing and assignment, it is anticipated that a survey will be mailed out shortly. Notice of the survey will be given in a later issue of Australasian Biotechnology. The authors can be contacted by telephone at 03 6226 7553 (Nicol) and 03 6226 2721 (Nielsen) or by e mail at Dianne.Nicol@utas.edu.au and Jane.Nielsen@utas.edu.au.

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