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 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. 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. 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) 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 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) 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) 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 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.