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The Supreme Court’s recent decision in Quanta Computer v. LG Electronics will significantly impact the biotechnology industry, several industry attorneys told Pharmawire. This is despite the fact that patents in this case were related to computer systems, they added.
The decision continues a string of Supreme Court cases in recent years that have restricted the rights of patent owners, said the attorneys, limiting their ability to collect downstream royalties and expanding the “exhaustion” doctrine.
The exhaustion doctrine is the concept that a patent owner “exhausts” certain rights after the sale of the patented product or method. In this case, the Supreme Court made two central holdings - that method patents are susceptible to this concept just as product patents are, and that authorized sales of products that embody a patent exhaust the patent.
The case is likely to have particular impact on diagnostic and research tool manufacturers such as Roche Molecular Systems, Beckman Coulter, and Invitrogen, the attorneys agreed. Companies in these areas rely or use licensing agreements that contain use restrictions for the patented product or method, or often employ multi-tiered licensing programs.
Many of the products those companies produce are involved in downstream products – a set of diagnostic tools collected into a kit, for example, and sold by a middle party to a company such as Quest Diagnostics.
The attorneys said the case may also open up a new line of attack in biotechnology litigation, and will likely encourage companies to sue for breach of contract in place of the more typical patent infringement suit.
“This decision could have an impact on licensors who are licensing to the diagnostic or research tools industries,” said William Gaede, co-chair of the life sciences practice at McDermott Will & Emery. “Such licenses would likely be subject to the exhaustion doctrine. Licensors couldn’t recover against the purchasers from the research tools or diagnostic companies for the products sold.”
Gaede said the case may move the industry toward breach of contract lawsuits being considered as a remedy for unauthorized uses of patent technology in place of patent infringement suits.
And while the application of the exhaustion doctrine would be less straightforward to apply in biotechnology than in electronics, its impact would be felt strongly, said Kevin McCabe, a director at Sterne, Kessler, Goldstein & Fox.
“The importance of the agreements and questions of the breach of the agreements is amplified by this,” McCabe said. “I would definitely see in the future opportunities for people to file suits not for patent infringement but for breach of contract.”
James Foster, a partner at Wolf Greenfield, said he knew of at least one instance where the Quanta situation would apply in the biotech field, and that it would likely become more apparent over time just how much impact this decision would have on the industry. He pointed to combination HIV therapies as an example of where the doctrine could eventually be applied.
Albert Jacobs, a partner at Dreier, said an example of Quanta’s impact in biotech could be felt with Novo Nordisk’s recombinant human growth hormone, should the company license only a method of treatment. Jacobs noted that, in the Quanta case, the complaint was brought after the company combined technology it had licensed with its own platform, which in the drug field would render many combination therapies impossible.
Perhaps the biggest impact will be made in the drafting of licensing agreements, McCabe speculated. He said both the Quanta decision and last year’s Medimmune v Genentech ruling could have the combined effect of a shift in focus from the patent to the contracts themselves.
Quest Diagnostics has a market cap of USD 10.62bn. Beckman Coulter and Invitrogen have market caps of USD 4.71bn and USD 3.85bn, respectively.
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