An Examination of the Issues Surrounding Biotechnology Patenting and Its Effect Upon Entrepreneurial Companies
Released: 2000-08-31T00:00:00

Introduction

Biotechnology may be broadly defined as the application of biological systems and organismsto technical and industrial processes. (1) The disciplineof biotechnology may be traced to the 1944identification of deoxyribonucleic acid (DNA). (2) Thisdiscovery commenced a significant researcheffort that culminated in the sequencing of the human genome in 2000. (3) The biotechnology industryhas provided many new technologies, including diagnostic kits, DNA fingerprinting, proteinsynthesis, enzyme engineering, and transgenic plants and animals. (4) Many observers forecast that thecompletion of the human genome project will bring even more spectacular advances in the future. (5)

The biotechnology industry is notable both for its heavy concentration of small businesses and its weighty research and development (R&D) expenses. In 1998, a total of 1,283 biotechnologyfirms participated in the domestic biotechnology market. More than two-thirds of these firmsemployed fewer than 135 persons, and approximately one-third employed less than 50 persons. (6) Theprominence of small biotechnology enterprises belies the enormous expenses that must be devotedtowards R&D in this market. The U.S. biotechnology industry is one of the most research-intensiveendeavors in the world, with $9.9 billion devoted to R&D in 1998. (7)

Given their small size and heavy expenses, many observers believe that firms in the biotechnology industry rely upon their ability to raise venture capital. (8) The patent law has beenidentified as a facilitator of these R&D financing efforts. Absent patent rights, a biotechnologyconcern may have scant tangible assets to sell or license. By providing members of thebiotechnology industry with enforceable proprietary interests in their inventions, the patent law issaid to expedite capital infusion and technology transfer. (9)

Although many commentators believe that the patent law plays a crucial role in the biotechnology industry, (10) numerous legal,economic and policy issues have arisen concerning thepatenting of biotechnology. This report considers these issues, emphasizing the effect of intellectualproperty rights upon small, entrepreneurial companies. This study first profiles the biotechnologyindustry, including a review of its principal technologies and need for R&D funding. It nextprovides an overview of the patent system and its relationship to the biotechnology industry. Thisreport then reviews two principal patentability requirements, statutory subject matter and utility, andtheir application to biotechnologies. It closes with a discussion of legislative issues and options forbiotechnology patenting.

This study suggests that patents play a significant role in the ability of small, entrepreneurial firms in the biotechnology industry to acquire capital for R&D. Experience teaches that investorsmay be wary of uncertainties surrounding patent rights, leading to diminished capital infusions intothe biotechnology market.

The Biotechnology Industry: An Overview

The birth of the U.S. biotechnology industry dates to the founding of Genentech, Inc., in 1976. (11) Biotechnology today is a growing sector of the domestic economy. The industry essentially doubledin size between 1993 and 1999, generating $20 billion in revenues in 1999. (12) Biotechnologycompanies directly employed 150,800 persons in 1999, with an additional 286,600 persons employedby companies supplying goods or services to the industry. (13)

The domestic biotechnology industry includes a handful of large companies with a substantial market share. (14) However, "a typical biotechR&D company is a small start-up with all its financialand human resources invested in the development of one or two products or technologies." (15) It isoften the case that a promising technology is discovered and preliminarily developed by a smallenterprise. A large biotechnology firm then acquires the smaller enterprise, or its intellectualproperty rights, in order to bring the technology to market. (16)

Domestic enterprises enjoy a commanding position in the global biotechnology industry. The U.S. biotechnology industry is the acknowledged world leader in biomedical research, benefittingthe health of U.S. citizens, creating tens of thousands of jobs and improving our balance of trade. (17) The biotechnology industry is also diverse, employing its technologies in medicine, industrialprocesses, environmental cleanup, food, agriculture and numerous other applications. A brief reviewof some principal biotechnologies follows.

Cloning

Biotechnology has recently introduced the technique of cloning. Cloning employs DNA from one animal to produce a genetically identical animal. (18) Cloned organisms may be created by fusinga cell from one organism with an immature reproductive cell from a second organism. The secondcell is then stimulated to replicate. The cells, if placed into an appropriate womb, will result in thelive birth of an animal genetically identical to the one from which the original DNA was taken. Inthe case of Dolly, the sheep cloned in 1997 in Scotland, (19) an udder cell was fused with an unfertilizedegg cell from which the nucleus had been removed, and the cell mass grown was then implanted ina sheep womb.

Gene Therapy

Scientists may introduce a gene directly into a patient through a technique called gene therapy. This method involves the insertion of a gene into the cells of a gene-deficient patient, either tocorrect a genetic error or to introduce a new function into the cell. The National Institutes of Health(NIH) first performed gene therapy on a human patient in 1990. (20) NIH scientists took blood cellsfrom a four-year-old girl suffering from an immune disease caused by the lack of a specific enzyme,adenosine deaminase (ADA). They then introduced a functioning ADA gene into those cells, whichwere then returned to the patient's bloodstream.

Throughout the 1990's, thousands of patients were treated with various sorts of gene therapy on an experimental basis in the United States. (21) The death of a patient undergoing experimentaltreatment in late 1999 has chilled gene therapy efforts, however. (22) A subsequent inquiry revealedindications of unacceptable scientific conduct and monitoring. (23) These findings prompted bothinvestigations by Congress and the Food and Drug Administration (24) as well as suspensions of similargene therapy programs elsewhere. (25)

Genetically Modified Organisms

A specific gene may itself be used to endow its possessor with new properties or functions. (26) The agricultural division of the biotechology industry is based upon this technology. The typicalGenetically Modified Organism (GMO) results from the insertion of a gene from one organism intoanother organism, conferring new properties upon the receiving organism. Widely known examplesinclude insecticide-producing crops and rice enriched with vitamin A. (27) The use of GMOs in theUnited States has become widespread, with estimates that 33% of domestic corn and 50% of soybeancrops are genetically modified. (28) Additionally,cotton and canola oil are major crops also consistingsubstantially of GMO strains. (29)

The Human Genome Project

The Human Genome Project is a publicly funded, international consortium of scientists engaged in identifying each of the approximately 100,000 human genes. (30) In the United States, the HumanGenome Project was launched in 1990 under the auspices of the U.S. Department of Energy and theDepartment of Health and Human Services. (31) Private enterprise Celera Genomics, led by J. CraigVenter, also endeavored to sequence the human genome. (32)

On June 26, 2000, President Clinton and UK Prime Minister Tony Blair announced that the initial stage of the Human Genome Project had been completed. Growing understanding of thehuman genome will allow researchers to move from identifying genes to understanding theirfunctions. In particular, scientists should increasingly possess the tools needed to identify the genesassociated with diseases. This understanding should assist the development of new approaches fordiagnosing, preventing and treating disease. (33)

Research Products

Fragments of DNA may also be used in basic and applied research. Because DNA is organized is a specific way, (34) a set DNA strand may beemployed as a probe for the presence of thecomplementary strand. Researchers are thus able to use such genetic probes in experimental anddiagnostic procedures to search for specific DNA and RNA sequences.

Living organisms, into which certain genetic dispositions have been engineered, also can be used in research. (35) A prominent example is theso-called "Harvard mouse," which has been renderedespecially susceptible to cancer. (36) A similarmouse lacks a functional immune system, making itextremely useful for immunological and infectious disease research. (37)

Therapeutics

Therapeutic genetic inventions involve isolated genes or their protein products. (38) These proteinshave broad applications to many diseases, including cancers, diabetes, osteoporosis, as well as AIDSand other infectious diseases. (39) For example,some hormonal deficiencies may be treated with dosesof human growth hormone, a recombinant protein. (40) Biotechnologies have also allowed the morerapid and efficient manufacture of human insulin in order to treat diabetes. (41)

Clinicians may also use short, specific DNA sequences to search an individual's tissue or bodily fluid for the presence of a specific genetic element. (42) One application of DNA probes is in geneticscreening. In this process, which is in a nascent stage of development, tendencies toward hereditarydiseases can be determined by assaying the genetic make-up of a fetus or the prospective parents. (43)

Other biotechnologies include antibodies directed against specific proteins or organisms (44) andmanufactured protein fragments bound by certain antibodies in an infected patient's bloodstream. (45) These products may be used in diagnostic assays. Such tests screen blood or other samples forindicators of pregnancy, cancer, human immunodeficiency virus infection and other medicalconditions.

The Role of R&D Funding in the Biotechnology Industry

The biotechnology industry has generated a variety of technical advances that have impactedfields ranging from agriculture, to health care, to the criminal justice system. These advances havenot been achieved without costs, however. The significant presence of small firms, as well assubstantial research and development expenses, suggest that capital infusions play an important rolein the biotechnology industry. The need for funding looms largest for products intended for humanmedical use. (46) The typical biotech companygenerally requires $250 million to $500 million to funda product from research to profitability. (47) Lengthyperiods required for regulatory approval accountfor much of this expense. (48)

Despite the promise it holds for future developments, the biotechnology industry has recently encountered difficulty in attracting investors. One commentator recently observed that "venturecapital is tough to come by at a time when investors are looking for quick payouts and have littlepatience for biotechnology, which seems to be plodding compared to Internet, software andtelecommunications companies." (49) For example,during the first six months of 1999, biotechnologyinitial public offerings generated only $363 million, representing only about 10% of the $3.5 billionattracted by Internet and software companies. (50)

As a result, many industry observers believe that a strong patent portfolio is essential for capital infusion in the biotechnology industry. (51) Evena firm that does not yet market a product may be ableto obtain income from its intellectual property. Rights may be sold or the technology licensed fordevelopment or research purposes, creating a revenue stream that supports additional research. Patent attorney Kenneth J. Burchfiel has characterized biotechnology as an industry whose wealthresides in its patents more than its products. (52)

Recent stock market movements suggest the significance of patent rights to investors. For example, on March 14, 2000, President Bill Clinton and UK Prime Minister Tony Blair issued a jointstatement urging that "raw fundamental data on the human genome . . . should be made freelyavailable to scientists everywhere." (53) A numberof biotechnology companies lost a substantialpercentage of their market capitalization as investors sold shares in record numbers. (54) Among theseenterprises were Human Genome Sciences, Inc, which fell 25% on the day on the announcement,and Incyte Pharmaceuticals, Inc., which fell 30%. (55) The chief concern of many sellers was thatbiotechnology patent rights would be weakened or subject to uncertainty. (56) The United States Patentand Trademark Office ("PTO") responded by issuing a press release on March 16, 2000, explainingthat U.S. patent policy was unaffected by the joint statement. As the impact of the Clinton-Blairannouncement was better understood, the stock prices of many biotechnology enterprises rose. (57)

The Clinton-Blair announcement was not an isolated incident. The market capitalization of many biotechnology and other high-technology enterprises has been impacted by patent-relateddevelopments. In a single day, CellPro Inc. lost 50 % of its stock market value following the FederalCircuit holding that CellPro Inc.'s Ceprate bone marrow transplant system infringed a competitor'spatent. (58) Similarly, Visx, a manufacturer of lasermedical devices, lost a patent dispute and watchedits stock fall 40 % within one hour. (59) A successfulsettlement of a patent infringement lawsuit withHitachi recently imparted substantial gains to Rambus Inc. stock. (60) Similarly, the stock of OdeticsInc. rose 24% upon news of a favorable jury verdict in its patent litigation against StorageTechnology Corp. in 1998. (61)

These episodes suggest that individuals may be aware of a company's patent portfolio when making investment decisions. As a result, the strength or weakness of intellectual property rights,as well as the certainty associated with their creation and scope of granted rights, potentially impactscapital infusion into high technology markets such as biotechnology.

Core Principles of Patenting Biotechnology

The rate of patenting biotechnology has dramatically increased in recent years. More than 9,000patents issued in the biotechnological arts in1998, as compared with just over 2,000 patents in1988. (62) Patents concerning genetic materials arealso being filed at a growing rate. On July 13,2000, the Director of the Patent and Trademark Office (PTO), Q. Todd Dickinson, reported thatapproximately 20,000 patent applications concerning genetic materials were pending before thePTO. (63) He also explained that approximately6,000 gene-related patents had already issued by thatdate, including 1,000 that were specifically drawn to human genes. (64)

The patenting process begins with the filing of an application at the PTO. In deciding whether to approve a patent application, a PTO examiner will consider whether the submitted applicationfully discloses and distinctly claims the invention. (65) The examiner will also determine whether theinvention itself fulfills certain substantive standards set by the patent statute. (66) Among the moreimportant requirements are that the invention must be novel and nonobvious. To be judged novel,the invention must not be fully anticipated by a prior patent, publication or other knowledge withinthe public domain. (67) A nonobvious inventionmust not have been readily within the ordinary skillsof a competent artisan at the time the invention was made. (68)

Beyond novelty and nonobviousness, two patentability requirements are of particular significance for biotechnology. First, the invention must be judged to comprise subject matter thepatent law was designed to protect. (69) Thisgatekeeper to patentability is variously known as therequirement of "patent eligibility," "patentable subject matter," or "statutory subject matter." (70) Acrucial biotechnology patenting issue is whether living inventions and genetic material areappropriately subject to the patent system. The debate concerning biotechnology patents is reviewedbelow.

The other significant substantive patentability standard is the so-called utility requirement. This requirement is ordinarily satisfied if the invention is operable and provides a tangible benefit. (71) Although the utility requirement is readily met in most fields, it presents a more significant obstacleto patentability within biotechnology. Biotechnicians sometimes synthesize compounds without aprecise knowledge of how they may be used to achieve a practical working result. When patentapplications are filed claiming such compounds, they may be rejected as lacking utility within themeaning of the patent law. This report will later consider the utility requirement in some detail.

Once the PTO allows a patent to issue, the patent instrument is formally published. (72) Issuedpatents therefore present a full technical disclosure of the patented invention. (73) The patent proprietorthen obtains the right for twenty years to exclude others from making, using, selling, offering to sellor importing into the United States the patented invention. (74) The Patent Act allows these rights tobe enforced in federal court. Unauthorized infringers may be enjoined and required to pay monetarydamages in favor of the patentee. (75)

A few core points concerning the patent law should be noted here. First, the patent grant is in the nature of the right to exclude. A patent owner may prohibit others from employing the patentedinvention, but does not obtain the right to make or use the patented invention itself. (76) For example,simply because the PTO has granted an individual a patent on a gene therapy does not mean that theFood and Drug Administration has approved, or will approve, the practice of that therapy. Inaddition to the Food and Drug Administration, the Environmental Protection Agency andDepartment of Agriculture regulate the use of biotechnological inventions. (77)

Second, the patent right applies not only to full-fledged commercial activities, but also to most unauthorized experiments involving the patented invention. The patent statute itself contains no"experimental use" infringement defense analogous to the fair use privilege codified within theCopyright Act. (78) As a result, the United StatesCourt of Appeals for the Federal Circuit has held thatmere experimentation with the patented invention constitutes an infringing act, so long as thisexperimentation holds the potential to impact the patent holder negatively. (79) The court concludedthat only the use of the patented invention wholly for "amusement, to satisfy idle curiosity, or forstrictly philosophical inquiry" may possibly be exempted from infringement liability. (80) Given theexpenses associated with biotechnology R&D, increasing collaboration between industry andacademia, and ultimately commercial motivation of most researchers, successful use of this so-calledexperimental use defense is unlikely. (81)

Finally, the PTO bases its patentability determinations only upon the relatively limited criteria set forth in the Patent Act. These criteria include whether the patent application appropriatelydiscloses and claims the invention for which protection is sought, as well as the impact of thenovelty, nonobviousness, statutory subject matter and utility requirements upon the claimedinvention. (82) The PTO is not statutorily authorizedto consider other issues, such as whether thepatented invention may be licensed to ensure access by researchers and other interested parties, whenmaking this decision. (83)

The Patent Eligibility of Living Inventions and Genetic Materials

The issue of whether living organisms are merely unpatentable products of nature, or whetherethical or policy concerns should bar their patenting, continues to command public attention. Aswith other sorts of inventions, the governing statute is section 101 of the current patent law, thePatent Act of 1952, which is codified in Title 35 of the United States Code. Section 101 allowspatents to be granted for any "process, machine, manufacture, or composition of matter." As a result,an invention is eligible for patenting if it is a "process," which the Patent Act defines as a "process,art or method." (84) Alternatively, the invention maybe a "machine," which has been interpreted toinclude any apparatus; (85) a "composition ofmatter," including synthesized chemical compounds andcomposite articles; (86) or a "manufacture," a broadlyoriented, residual designation. (87)

Under the literal language of the Patent Act, most biotechnologies would qualify as either a composition of matter or process. Genetic materials are at bottom chemical compounds, albeit verycomplex ones, that are considered to be compositions of matter. (88) Illustrative is the patentapplication at issue in In re Deuel , (89) which claimed a "purified and isolated DNA sequenceconsisting of a sequence encoding human heparin binding growth factor of 168 amino acids havingthe following amino acid sequence: Met Gln Ala . . . [the remainder of the lengthy amino acidsequence is omitted here]." An inventor could also obtain a process patent directed towards thetechniques of biotechnology. For example, in In re O'Farrell , (90) the patent applicant claimed a"method for producing a predetermined protein in a stable form in a transformed host species ofbacteria."

Despite the broad statutory language, the courts had traditionally crafted several exceptions topatentability. One significant restriction is that a "product of nature"-a preexisting substance foundin the wild-may not be patented per se . For example, an individual may not obtain a patent on a newvariety of plant found in a remote part of the Amazon Basin, even if the existence of this plant waspreviously unknown. (91)

However, the courts have also established that significant artificial changes to a product of nature may render it patentable. (92) By purifying,isolating or otherwise altering a naturally occurringproduct, an inventor may obtain a patent on the product in its altered form. (93) The rule that patentsmay be granted for altered products of nature renders patentable many inventions of biotechnology,including genetic materials and proteins. For example, in Amgen, Inc. v. Chugai PharmaceuticalCo. , (94) the patentee claimed a "purified andisolated DNA sequence consisting essentially of a DNAsequence encoding human erythropoietin." (95)

With the scope of patentable subject matter limited, one expert has concluded that a properly issued patent cannot give rights over a gene as found in a person's chromosomes. The artificialnucleic acid construct claimed by the patent would not be the same as found in a living organism. (96)

Patent protection may also be obtained on so-called living inventions. The leading Supreme Court opinion on the subject, the 1980 decision in Diamond v. Chakrabarty concluded that agenetically engineered microorganism was patentable. (97) Diamond v. Chakrabarty involved the PTOrejection of Dr. Ananda Chakrabarty's claims towards an artificially generated bacterium with theability to degrade crude oil. At the Supreme Court, the PTO Solicitor's chief argument was thatbecause genetic technology could not have been foreseen at the time the patent statute was draftedin the early 1950's, the resolution of the patentability of such inventions should be left to Congress. On its way to reversing the PTO decision, the Court disagreed: "A rule that unanticipated inventionsare without protection would conflict with the core concept of the patent law that anticipationundermines patentability." (98) The Court alsodismissed concerns over the possible perils of geneticresearch. It stated that researchers would assuredly pursue work in biotechnology whether theirresults were patentable or not, and the regulation of genetic research was a task that also fell to thelegislature. (99)

Following the lead of the Supreme Court, the PTO Board has held that an artificial animal life form constitutes patentable subject matter. In Ex parte Allen , (100) the Board reasoned that a claimedpolyploid Pacific oyster constituted a non-naturally occurring manufacture or composition of matterwithin the meaning of ï¿½ 101. Contemporaneously, PTO Commissioner Donald Quigg issued aformal notice, stating that non-naturally occurring, non-human multicellular living organisms arepatentable subject matter. (101) Among thenotable patents the PTO issued in keeping with this noticeconcerned the Harvard mouse, which was genetically engineered to be susceptible to cancer. (102)

The PTO notice did advise that "the grant of a limited, but exclusive property right in a human being is prohibited by the Constitution." (103) This statement appears consonant with the ThirteenthAmendment, which provides that "[n]either slavery nor involuntary servitude, except as apunishment for crime whereof the party shall have been duly convicted, shall exist within the UnitedStates." (104) The Commissioner further advisedthat claims directed to a non-plant multicellularorganism which would include a human being within its scope should include the limitation"non-human" to avoid a ï¿½ 101 rejection.

Objections to Patenting Biotechnology

Several objections have arisen to patenting the inventions of biotechnology. Most of these objections have been raised with regard to human genetic materials and genetically modifiedorganisms, but they typically apply with varying force to other biotechnologies. A central positionof many commentators is that the grant of proprietary rights for these inventions is degrading andinappropriate. These concerns principally stand on ethical, moral and theological grounds.

Some individuals believe that patenting biotechnology devalues the worth and dignity of living beings. These commentators believe that biotechnology patents would allow individuals to obtainan ownership right in another sentient being. From this perspective, such a patent right is akin toslavery and morally wrong. (105)

Other observers have identified a fundamental right of species and individuals to biological integrity. Biotechnology activist Jeremy Rifkin, for example, has expressed concerns that thepatenting of genetic materials reduces living beings to mere bundles of information. When livingcreatures are abstractly expressed as claims in a patent instrument, Rifkin urges, the notion ofmanipulating them at a fundamental level becomes more palatable. (106)

Theological arguments have also been raised against patenting biotechnology. Some observers believe that reverence for life is eroded by economic pressures to view living beings and geneticmaterials as industrial products. Noting these theological concerns, Reverend WesleyGranberg-Michaelson identified

a background of Judeo-Christian thinking about how we relate to the natural environment. In a nutshell that background says that we have a responsibility for preserving the integrityof that creation, and for working with it to preserve its intrinsic values . . . . [T]he doctrineof trust in legal parlance is synonymous about the relation of creation to humanity. TheJudeo-Christian view says that the creation is, in essence, held in trust; there arelimitations on what we can do. We have a responsibility to see that its integrity ispreserved. This background has led to legislation such as endangered species laws, animalwelfare laws, laws regarding environmental quality. (107)

Others are concerned that biotechnology patenting places the values of the traditional agricultural community at stake. They explain that patenting may cause a handful of large,multinational enterprises to control genetically modified animals, seeds and other fundamental toolsof the farmer. While farmers could previously employ resources at their own disposal, they may nowbe dependent upon others to obtain seeds. Some observers also believe that plants and animals withincreased production efficiencies will reduce the number of farmers needed. (108)

Other concerns over biotechnology patenting are instrumental in character. Some commentators believe that allowing patents on living inventions, genetic materials and otherbiotechnologies will encourage their continued commercial development. (109) Others are concernedthat granting patents lends an aura of legitimacy to biotechnology. (110) In either case, this set ofconcerns about patenting biotechnology echoes concerns about the impact of biotechnology moregenerally. Although such arguments are numerous and diverse, some of the principal objections aresummarized here.

During his June 26, 2000, remarks commemorating the completion of the first survey of the human genome project, President Clinton noted several common concerns regarding theidentification of genetic information. As explained by President Clinton:

We must ensure that new genome science and its benefits will be directed toward making life better for all citizens of the world, never just a privilegedfew.

As we unlock the secrets of the human genome, we must work simultaneously to ensure that new discoveries never pry open the doors of privacy. And wemust guarantee that genetic information cannot be used to stigmatize ordiscriminate against any individual or group. (111)

Other observers oppose patents on genetically modified organisms due to their belief that they contribute to animal suffering. They cite such instances as the incorporation of the bovine growthhormone gene into pigs. This gene encourages an increased lean to fat ratio that produces a healthiermeat product. Animals expressing the gene were found to be lethargic, arthritic, and possessing anheightened vulnerability to stress. (112) Otherbiotechnologies, such as the Harvard mouse, dramaticallyincrease the likelihood an animal will experience disease and suffering. (113)

Other commentators have expressed concerns over diminishing genetic diversity. According to Jeremy Rifkin, while biotechnology may provide gains in the short run, the long termconsequences include the depletion of genetic stock. In his view, because biotechnology would maylead to the development of "optimal" plants and animals, the gene pool will suffer for lack of variety. These specialized breeds may be susceptible to unknown weaknesses and not be sustainable. (114)

Observers have also noted the environmental hazards associated with release of artificialentities. The consequences of the release of genetically modified organisms are difficult to predict. As living entities, these organisms may reproduce, mutate and migrate once released into theenvironment. Artificial products may also result in deleterious interactions with other animals andplants in uncertain ways. (115)

Benefits of Patenting Biotechnology

Proponents of biotechnology patenting offer numerous arguments in favor of their position. First, they observe that patent rights provide the right to exclude others from practicing the claimedinvention. (116) Patent ownership does notprovide an affirmative right to market the technology. These commentators believe that disallowing patents to issue on biotechnologies may decreaseresearch and development efforts, but would neither suppress biotechnology nor allow meaningfulcontrol on the manner in which biotechnologies are employed.

Observers such as Professor Robert P. Merges have further stated that the patent system is not the proper vehicle for technology assessment. (117) He explains that the patent system has a more basicgoal: "to promote the progress of science and useful arts," as stated in the Constitution. (118) As aresult, Professor Merges believes that potential social consequences of biotechnologies are betteraddressed through regulatory regimes. Agencies such as the Food and Drug Administration couldreview health and environmental hazards. Scientists could establish seed banks to preserve thegenetic variety of various crops, for example, or establish protocols to address concerns over privacy. In the view of Professor Merges, these measures have little to do with patents.

In deciding to uphold PTO decisions to grant patents on living inventions, the courts have also observed that patents have long been granted on living inventions. Exemplary is the 1873 patentissued to Louis Pasteur on "yeast, free from organic germs of disease, as an article ofmanufacture." (119) Microbiological processeshave been used for centuries in order to make wine, agetobacco, bate leather, digest sewage and for numerous other applications, and many of thesetechniques have been patented in the United States. (120)

Attorney James R. Chiapetta believes that the denial of patent protection would not dampen enthusiasm for biotechnology development. Instead, he asserts, this step would merely encourageinventors to maintain biotechnologies as trade secrets. The concealment of the workings ofbiotechnologies would only hinder the development of regulatory measures that would reduce anyperceived threats of harm. (121)

Mr. Chiapetta also explains that a purpose of the patent system is to enhance industrial efficiency. Part of this process can be the obsolescence of older technology as a result of innovativeadvances. Mr. Chiapetta finds it unfortunate that biotechology may place further strains on theviability of the traditional family farm, but observes that biotechnologies are hardly unique in thisregard. Many technical, economic and social factors are leading to fewer and larger farms withinthe United States, and he argues that biotechnology should not be singled out within the patent lawfor this reason. (122)

Proponents of biotechnology patenting also observe that this prospect appears rather benign in the face of current social norms. According to LeRoy Walters, Ph.D., Director of the KennedyInstitute of Ethics at Georgetown University, given that individuals routinely buy, sell, breed,confine, eat and perform research on plants and animals, the practice of patenting them does notseem particularly worrisome. (123)

A number of scientific commentators have dismissed the notion of species integrity as specious. For example, Dr. Oliver Smithies of the University of Wisconsin explained that many mammalian species with no possible means of inter-breeding have remarkably similar genomes. (124) Dr. Smithiesfurther observed that inter-species genetic transfer has occurred naturally, albeit rarely, withouthuman intervention through viral and other microbial agents. Dr. Finnie A. Murray of OhioUniversity has explained that all species are constantly evolving; no species has a fixed genome, andgenetic plasticity is a fundamental property of living beings. (125) As a result, many observers do notbelieve that artificial inter-species genetic transfers can be said to violate any fundamental norm ofgenetic integrity.

Other commentators have also noted that traditional breeding programs often perpetuate genetic defects. One expert points out that purebred cats, dogs and horses often suffer from a variety ofgenetic defects leading to diseases ranging from metabolic disorders to arthritis. (126) Geneticengineering potentially avoids these problems by allowing expression of a single desirable traitwithout concomitant selection of others. (127) In arguing that biotechnology may be put to work todiminish animal suffering, some observers have pointed to the genetically engineered transgenicchicken that resists avian leukemia virus. The result has been healthier birds and significant savingsto the chicken industry. (128)

Finally, proponents of patenting in this field point to the many gainful advances already achieved by the biotechnology industry. The continued availability of patent protection mayencourage innovation and product development, proponents say, yielding concomitant socialbenefits. Although many of these commentators are cognizant of concerns for animal results, theyregard the treatment of human diseases and the amelioration of human suffering as a primary moralimperative. (129)

The Chimera Application

A team of inventors decided to place the issue of biotechnology patenting squarely before the PTO and the courts. In conjunction with biotechnology activist Jeremy Rifkin, cellular biologist Dr.Stuart Newman filed a patent application on December 18, 1997, claiming a method for combininghuman and animal embryo cells to produce a single embryo. (130) This embryo could then be implantedin a human or animal surrogate mother, resulting in the birth of a "chimera," or mixture of the twospecies. The Newman-Rifkin application specifically mentions chimeras made in part from mice,chimpanzees, baboons, and pigs. The PTO has rejected the application on several grounds, amongthem ineligible subject matter under ï¿½ 101, although final administrative action has not yethappened. (131) No matter what the ultimatedisposition of their application, Newman and Rifkin mayonce more bring the debate on the patentability of living inventions into the judicial system.

The Utility Requirement

Section 101 of the Patent Act also mandates that patents issue only to "useful" inventions. Utility ordinarily presents a minimal requirement that the invention be capable of achieving apragmatic result. (132) Patent applicants need onlysupply a single, operable use of the invention thatis credible to persons of ordinary skill in the art.

As demonstrated by Justice Story's 1817 instructions to the jury in Lowell v. Lewis (133) and Bedford v. Hunt , (134) the notion ofutility is a longstanding feature of United States patent law. In Lowell , Justice Story remarked:

All that the law requires is, that the invention should not be frivolous or injurious to the well-being, good policy, or sound morals of society. The word "useful", therefore, isincorporated into the act in contradistinction to mischievous or immoral. . . . But if theinvention steers wide of these objections, whether it be more or less useful is acircumstance very material to the interest of the patentee, but of no importance to thepublic. If it be not extensively useful, it will silently sink into contempt and disregard.

Under Justice Story's view, the utility requirement does not provide a significant place for technology assessment. Outside of the most narrow limits, valuation of the invention is left to themarket rather than to the mechanisms of the patent law.

Historically, courts employed the utility requirement to strike down patents concerning inventions that were judged to be immoral or fraudulent. A handful of early decisions invalidatedpatents on inventions intended for use in gambling or other disfavored activities. A patented toyautomatic race course, (135) lottery devices (136) and a slot machine (137) were among those held to lack utilitybecause their functions were judged unwholesome. Inventions that were designed to misleadconsumers were similarly invalidated. (138)

The modern view is that so long as the invention may be put to a single lawful use, it possesses utility within the patent statute. Representative of the contemporary position is the Federal Circuitopinion in Juicy Whip, Inc. v. Orange Bang, Inc . (139) The plaintiff, Juicy Whip, held a patentconcerning a post-mix dispenser that included a transparent bowl. According to the patent, the bowlwas filled with a liquid that appeared to be the beverage available for purchase. While the bowl wasarranged in such a way that it seemed to be the source of the beverage, in fact no fluid connectionexisted between the bowl and the beverage dispenser at all. Instead, the beverage was mixedimmediately prior to each beverage sale. The district court struck Juicy Whip's patent on the groundof lack of utility, reasoning that the patented invention acted to deceive consumers.

The Federal Circuit reversed on appeal, concluding that the fact that one product can be altered to make it look like another is in itself a specific benefit sufficient to satisfy the statutory requirementof utility. The appeals court reasoned that many valued products, ranging from cubic zirconium tosynthetic fabrics, are designed to appear as something that they are not. (140) The Federal Circuitfurther concluded that the utility requirement does not direct the PTO or the courts to resolve issuesof product safety or deceptive trade practices, which were left to such agencies as the Federal TradeCommission or the FDA. (141)

As a result of decisions such as Juicy Whip , in most technical fields the utility requirement is employed merely to sift out utterly incredible inventions from the domain of patentability. Forexample, the utility requirement has led to the rejection of patents claiming a perpetual motionmachine (142) and a method of slowing the agingprocess. (143)

In modern practice, the utility requirement most often comes into play in the fields of biotechnology and chemistry. In these disciplines, inventors often synthesize a new compound, ora method of making a new compound, without a preexisting knowledge of a particular use to whichthe compound may be put. Scientists may generate a compound based on their knowledge of thebehavior of related pharmaceutical compounds, for example, or may wish to isolate a fragment ofgenetic material for which some application may develop in the future. However, at the time theinventor generates the compound, no precise knowledge of the compound's utility is known.

Today there are considerable incentives for biotechnicians to obtain patent protection on compounds of interest as soon as possible. For example, in the case of medical treatments, food anddrug authorities require extensive product testing before the pharmaceutical can be broadly marketed. Before investing time and effort on laboratory testing and clinical trials, biotechnology concernsdesire to obtain patent rights on promising compounds even where their particular properties are notwell understood. But when patent applications are filed too close to the laboratory bench, inventorshave discovered that the utility requirement can pose a considerable hurdle.

The Supreme Court opinion in Brenner v. Manson addressed such a situation. (144) The inventorManson filed a patent application claiming a method of making a known steroid compound. Although the particular compound Manson was concerned with was already known to the art,chemists had yet to identify any setting in which it could be gainfully employed. However, it wasknown that another steroid with a very similar structure had tumor-inhibiting effects in mice,Manson's new method of making the compound was a research tool of interest to the scientificcommunity.

The Patent Office Board affirmed the examiner's rejection of the application. The Board reasoned that because Manson could not identify a single use for the steroid he produced, the utilityrequirement was not satisfied. The Board was unimpressed that a similar compound did havebeneficial effects, noting that in the unpredictable art of steroid chemistry, even minor changes inchemical structure often lead to significant and unforeseeable changes in the performance of thecompound. Manson appealed to the Court of Customs and Patent Appeals, which reversed. Key tothe court's reasoning was that the sequence of process steps claimed by Manson would produce thesteroid of interest. According to the Court of Customs and Patent Appeals, because the claimedprocess worked to produce a compound, the utility requirement was satisfied.

The Supreme Court, however, reversed. The Court took issue with Justice Story's understanding that the utility requirement is fulfilled so long as the claimed invention is not sociallyundesirable. At least within the context of scientific research tools, the Court imposed a requirementthat an invention may not be patentable until it has been developed to a point where "specific benefitexists in currently available form." (145) Chiefamong the Court's concerns was the breadth of theproprietary interest that could result from claims such as those in Manson's application. "Until theprocess claim has been reduced to production of a product shown to be useful, the metes and boundsof that monopoly are not capable of precise delineation. . . . . Such a patent may confer power toblock whole areas of scientific development, without compensating benefit to the public." (146) TheCourt closed by noting that "a patent is not a hunting license. It is not a reward for the search, butcompensation for its successful conclusion. 'A patent system must be related to the world ofcommerce rather than to the realm of philosophy.'" (147)

Although Brenner v. Manson appears to take a strict view of the utility requirement, a more recent Federal Circuit opinion on utility, In re Brana , (148) suggests a more limited role. Like Manson,Brana claimed chemical compounds and stated they were useful as antitumor substances. Thescientific community knew that structurally similar compounds had shown antitumor activity duringboth in vitro testing, done in the laboratory using tissue samples, and in vivo testing usingmice astest subjects. The latter tests had been conducted using cell lines known to cause lymphocytictumors in mice.

The PTO Board rejected the application for lack of utility, and on appeal the Federal Circuit reversed. Among the objections of the PTO was that the tests cited by Brana were conducted uponlymphomas induced in laboratory animals, rather than real diseases. The Federal Circuit respondedthat an inventor need not wait until an animal or human develops a disease naturally before findinga cure. (149) The PTO further stated that Branacited no clinical testing, and therefore had no proof ofactual treatment of the disease in live animals. The Federal Circuit found that proof of utility did notdemand tests for the full safety and effectiveness of the compound, but only acceptable evidence ofmedical effects in a standard experimental animal. (150)

The holding of Brana , along with its failure to discuss or even cite Brenner v. Manson , suggeststhat the Federal Circuit has adopted a more liberal approach to the utility requirement than did theSupreme Court. (151) The Federal Circuit didindicate that, in cases where the invention lacks awell-established use in the art, the applicant must disclose a specific, credible use within the patent'sspecification. (152)

Brenner v. Manson and Brana were chemical cases. The PTO applies the utility requirementto the analogous discipline of biotechnology as well. Inventors often seek patent protection onbiological compounds soon after they have been synthesized. Such compounds includecomplementary DNA ("cDNA"), which corresponds to proteins used by human cells, and expressedsequence tags ("ESTs"), DNA sequences that correspond to a small portion of each cDNA. Becausethis nascent field is highly unpredictable, the functions of cDNA fragments and ESTs are usuallyunknown at the time they are discovered. Yet they remain extraordinarily valuable for their potentialuses, and scientists from private industry, government facilities and university laboratories alike havemarketed these research tools for commercial sale. The patentability of these genetic materials hasproven controversial. While Brenner v. Manson holds that serious scientific interest alone does notfulfill the utility requirement, Brana and other Federal Circuit opinions suggest a more lenientposture.

In an attempt to address cDNA, ESTs, and other biotechnology patents, the PTO published "Revised Interim Utility Examination Guidelines" in the Federal Register on December 21, 1999. (153) The 1999 utility guidelines require all patent applicants to identify explicitly a specific, substantialand credible utility for their inventions, unless such a utility is already well-established. Accordingto PTO Director Q. Todd Dickinson, "the Patent Office has raised the bar to ensure that patentapplicants demonstrate a 'real world' utility. One simply cannot patent a gene itself without alsoclearly disclosing a use to which that gene can be put. As a result, we believe that hundreds ofgenomic patent applications may be rejected by the USPTO, particularly those that only disclosetheoretical utilities." (154)

Director Dickinson explained the meaning of terms "specific, substantial and credible" in the context of the utility requirement as follows:

ï¿½ An asserted utility is credible unless the logic underlying the assertion is seriously flawed, or the facts upon which the assertion is based are inconsistent with the logicunderlying the assertion. For example, at least some nucleic acids might be used as probes,chromosome markers, or diagnostic markers. Therefore, the per se credibility of assertionsregarding the use of nucleic acids is not usually questioned. However, even if credible, atleast one asserted utility must also be both specific and substantial.

ï¿½ A utility is specific when it is particular to the subject matter claimed. For example, a polynucleotide said to be useful simply as a "gene probe" or "chromosome marker" doesnot have specific utility in the absence of a disclosure of a particular gene or chromosometarget. Similarly, a general statement of diagnostic utility would ordinarily be insufficientto meet the requirement for a specific utility in the absence of an identification of whatcondition can be diagnosed.

ï¿½ A substantial utility is one that defines a "real world" use. Utilities that require or constitute carrying out further research to identify or reasonably confirm a "real world"context of use are not substantial utilities. For example, basic research that uses a claimednucleic acid simply for studying the properties of the nucleic acid itself does not constitutea substantial utility. (155)

Many observers have greeted the new PTO Guidelines favorably. The former Director of the National Institutes of Health (NIH), Dr. Harold Varmus, stated that he was "very pleased with theway [the PTO] has come closer to [the NIH's] position about the need to define specific utility." (156) Dr. Francis Collins, Director of the National Human Genome Research Institute, has said that thenew utility guidelines are "quite reassuring in terms of making sure that we end up with an outcomewhere the patent system is used to provide an incentive for research and not a disincentive." (157) Inaddition, Dr. Craig Venter, the President and Chief Scientific Officer of Celera GenomicsCorporation, recently stated that he was "pleased to see [the PTO] is raising the bar" on genepatents. (158)

An interesting aspect of the new PTO Utility Guidelines is their compatability with the governing case law. Although each application must be considered on its own merits, the Guidelinesappear to be closer to the holding of Brenner v. Manson than Brana. It is unclear how theFederalCircuit would rule on a utility-based rejection under the PTO Guidelines in light of its holding in Brana. (159) In this vein, PTO DeputyAssistant Commissioner for Patent Policy Stephen G. Kunin hasexpressed his view that "it may remain for the Board of Patent Appeals andInterferences and thefederal courts to determine the true scope of the substantiality criterion of the utility requirement ona case-by-case basis." (160)

Proponents of a Strict Utility Standard

Some legal and scientific commentators have expressed concern that proprietary interests in scientific knowledge will impede research efforts overall. Following the lead of Brenner v. Manson ,Professors Heller and Eisenberg have invoked the "tragedy of the anticommons" to argue against thepatenting of genetic materials. (161) The "tragedyof commons" is a familiar metaphor for manyeconomists, lawyers and scientists. A resource is prone to overuse in a tragedy of the commonswhen too many owners each have a privilege to use a given resource and no one has a right toexclude another. Overpopulation, air pollution, and species extinction result from tragedies of thecommons.

In a mirror image of the tragedy of the commons, a resource may be prone to underuse in a "tragedy of the anticommons." In this circumstance, multiple owners each have a right to excludeothers from a scarce resource and no one has an effective privilege of use. Transaction costs,strategic behaviors, and the cognitive biases of participants often prevent individuals from reachinga socially optimal agreement allocating property rights. Use of the resource then becomes difficultor impossible.

Professors Heller and Eisenberg argue the granting of intellectual property rights to early research results holds the potential to create a tragedy of the anticommons in biomedical research. They specifically identify two mechanisms through which patents on gene fragments may hinderinnovation. First, too many concurrent fragments of intellectual property rights may hinder theexploitation of potential future products. In a spiral of overlapping patent claims held by differentindividuals, one enterprise may own a patent on a raw genomic DNA fragment, another on thecorresponding protein, and yet another on a diagnostic test for a genetic disease. Professors Hellerand Eisenberg explain that each upstream patent allows its owner to set up another tollbooth on theroad to product development, adding to the cost and slowing the pace of downstream biomedicalinnovation.

Second, upstream patent owners may be able to stack licenses on top of the future discoveries of downstream users. The use of reach-through license agreements on patented research tools isexemplary. These covenants give the owner of a patented invention, used in upstream stages ofresearch, rights in subsequent downstream discoveries. Such rights may take the form of a royaltyon sales that result from use of the upstream research tool, an exclusive or nonexclusive license onfuture discoveries, or an option to acquire such a license. Professors Heller and Eisenberg contendthat reach-through license agreements may lead to an anticommons as upstream owners stackoverlapping and inconsistent claims on potential downstream products.

Proponents of a Lenient Utility Standard

Others have urged that originators of research tools too require a return on investment, and that allowing patents only on final products would further industry concentration. (162) If independentresearchers and research enterprises were unable to patent their discoveries, then they might haveno option but to join large companies capable of seeing this earlier research through to a completedproduct. This trend might chill the market for preliminary genetic materials and ultimately diminishresearch.

Commentators further note that research tools are subject to a lively market within the biotechnology industry. Many enterprises are interested in purchasing research tools, and as a resultmany enterprises are engaged in making them. Attorney Scott A. Chambers says that describingthese products as preliminary and arising within the "realm of philosophy" is simply inaccurate. (163)

Those in favor or a more porous utility standard also argue that research products do not present a special case. They observe that patented products and processes often are later found to possessadditional, more valuable uses than those named in the original patent. In such cases advanceknowledge of one particular use does not somehow restrain the patentee's proprietary interest inthose additional applications. For example, the chemical compound nitroglycerine, originallydeveloped as an explosive, was later found to be useful as a heart medication. If an inventor hadobtained a patent on the nitroglycerine compound itself, then he would continue to possess aproprietary interest in that compound no matter what applications were discovered for it. Whethercharacterized as a basic research tool or an applied technology, any invention potentially serves asthe basis for later developments. (164)

Finally, observers have noted that arguments similar to those of Professors Heller and Eisenberg have been made in the past. The techniques of polymer chemistry, for example, involve the use oflong chains of basic compounds. During the emergence of polymer chemistry several decades ago,some critics argued that granting broad generic claims on basic polymers would allow a fewenterprises to own the building blocks of the industry. These critics claimed that this monopolizationby a few would slow progress. According to some contemporary commentators, these perceivedconcerns never materialized with regard to polymers, and are unlikely to occur in the contemporarybiotechnology industry. (165)

Legislative Issues and Options

Patents play an important role within the modern biotechnology industry. Some observersbelieve that, particularly for entrepreneurs and small, entrepreneurial biotechnology firms, patentsfacilitate capitalization and therefore support technological advance. (166) Experience also suggests thatlegal uncertainties regarding biotechnology patents may impact the ability of enterprises to acquirefunding for their research and development efforts. However, other commentators remain deeplyconcerned over the implications of patenting living inventions, genetic materials and otherbiotechnologies, as well as the patenting of biotechnological inventions with unknown or speculativeutilities. Patent reform legislation holds the possibility for resolving these concerns. ShouldCongress choose to review the progress of biotechnology, there are at least two patent issues it couldconsider: patent eligibility and the utility requirement.

Patent Eligibility

The potential for limiting the patentability of living inventions is moderated by several factors. One source of restraints consists of international agreements to which the United States is asignatory. Two international agreements that speak towards intellectual property rights, the NorthAmerican Free Trade Agreement (NAFTA) (167) and the Trade-Related Aspects of Intellectual PropertyRights of the World Trade Organiziation ("TRIPS Agreement"), (168) are worthy of note here. Article1709(1) of NAFTA provides that signatory states "shall make patents available for any inventions,whether products or processes, in all fields of technology." Article 27(1) of the TRIPS Agreementreads similarly. This language confirms the broad sense of patent eligibility under current U.S. law.

Both NAFTA and the TRIPS Agreement do allow signatory states to exempt higher life forms from the patent system. As further stated in Article 1709(3) of NAFTA, a signatory may excludefrom patentability "plants and animals other than microorganisms" and "essentially biologicalprocesses for the production of plants or animals, other than non-biological and microbiologicalprocesses for such production." Article 27(3) of the TRIPS Agreement reads almost identically.

The impact of these exceptions is that a signatory may disallow patents from issuing on living entities other than microorganisms. Thus, microscopic organisms such as bacteria, viruses andprotozoa must be classified as patentable. Signatories may, but need not, issue patents on higher lifeforms ranging from genetically modified rice to the Harvard mouse.

Signatories to NAFTA and the TRIPS Agreement may also deny patents to processes that are deemed "essentially biological" in character. Whether a particular process is "essentially biological"depends upon the degree of artificial activity required to perform the process. A method ofselectively breeding animals by selecting particular animals and bringing them together would likelybe deemed "essentially biological" and therefore may be held unpatentable. However, a method oftreating a plant to improve its yield, such as a method of pruning a tree, would not be judged"essentially biological" due to the more significant degree of human intervention. (169) Excluding thislater sort of process from patentability would not comport with NAFTA or TRIPS Agreement. U.S.law arguably includes this exception already, given case law requiring that biotechnologicalinventions be subject to artificial invention in order to be patentable. (170)

Should Congress choose, it could take an approach other than that suggested by case law and PTO practice by making certain biotechnologies unpatentable. Numerous patent applications havebeen filed on a variety of biotechnological inventions. These applications have resulted in manyissued patents, and some of these patents have been litigated in the courts. Legislation affectingthese patents would prompt concerns over governmental takings under the Fifth Amendment. (171)

Limiting biotechnology patenting would counter prevailing trends within the patent communityboth domestically and abroad. As suggested by the recent patenting of methods of doing business,many patent systems are tending towards an increasingly broad scope of patentable subject matter. (172) Biotechnologies are generally patentable in Japan, and after several years of debate the EuropeanParliament issued a Directive approving biotechnology patents. (173)

The Utility Requirement

The utility requirement is judge-made law. Its only statutory mooring is the term "useful" recited in ï¿½ 101 of the Patent Act. Although the PTO has issued Utility Guidelines, Congress hasnever elaborated on the utility requirement. The concern of many actors within the biotechnologicalindustry that the utility requirement be calibrated appropriately, (174) concern within the researchcommunity that some patents could provide a disincentive for further research, and arguableinconsistencies within the case law, (175) suggestthat these issues may draw congressional interest.

Congress could examine whether the definition of patentable utility should be legislatively specified. For example, the Patent Act could list the pertinent factors suitable for demonstrating theutility of expressed sequence tags ("ESTs"). PTO Deputy Assistant Commissioner for Patent PolicyStephen G. Kunin has suggested that pertinent factors include knowledge of the correspondingmRNA sequence, protein coding sequence or genomic sequence; whether there are sequencepolymorphisms linked to the corresponding genomic location; the function of the protein encodedby the corresponding messenger Rnucleic acid ("mRNA"); the phenotype of a mutation in thecorresponding gene; the tissue distribution of the corresponding mRNA and tissue-specificexpression levels; and the map location of its corresponding genomic sequence. (176) A recurringcomplaint is that patent applicants specify minimal and rather abstract utilities, such as the possibleuse of an EST merely as a probe or marker. (177) Congress could resolve whether these uses fulfill thepatentable utility requirement. Some caution, however, that specifying such technical detail in lawhas drawbacks to the extent the law would need to be amended in order to reflect changes in rapidlyevolving technologies.