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Wednesday, 6 April 2016

The Evolution of U.S. Law and the Bio-Pharmaceutical Industry

Why do we need a new federal law concerning trade secrecy? In a recent post on the U.S. Defend Trade Secrets Act (DTSA), I asked why are we considering the DTSA. The answer is the attempt at increased protection for the bio-pharmaceutical industry--particularly securing the investment in expensive (and hugely profitable) socially-beneficial biologics (and the software industry post-Alice, but more on that later).  This issue apparently has not been fully explored in the debates concerning the DTSA in light of the changes to the U.S. Leahy-Smith America Invents Act and subsequent patent law discussed below (or at least it hasn't received the attention it deserves). 

In an excellent article by Professor Nicholson Price and Arti Rai titled, "Manufacturing Barriers to Biologics Competition and Innovation," the authors discuss the importance of trade secrecy to the manufacturing of biologics and how trade secrecy raises the price of biosimilars (almost like generics).  Importantly, more consistent trade secret protection will help protect manufacturing related information, including processes and materials, concerning biologics from potential misappropriation by former employees, competitors, collaborators and others.  This information includes, importantly, research related to biologics in the pipeline.  Firms will still likely seek patent protection over biologics and related information (although some may not), but trade secrecy will help secure the value of the investment in difficult (currently) to reverse engineer complex biologics (especially given the problems with detecting patent infringement).  Professors Price and Rai explain how complicated large molecule biologics take a substantial amount of time and expense to reverse engineer, here

"He's so nice.  He would never throw his hat at me
(or his shoe for that matter).  Please make me purr!"
[Happy belated St. Patrick's Day!]
The U.S. has moved toward encouraging trade secrecy.  The U.S. Leahy-Smith America Invents Act (AIA) of September 16, 2011 appears to favor trade secrecy over patent law in many ways.  Indeed, Robert L. Maier of the prominent law firm Baker Botts dubbed the AIA as the "America Invents Trade Secrets Act."  First, the Inter-Partes Review Proceedings makes it easier to challenge patents, thus weakening them.  This can push parties toward trade secrecy.  Second, the AIA weakens the best mode requirement by not allowing it to serve to invalidate a patent in litigation.  Professors Brian J. Love and Christopher Seaman explain, in "Best Mode Trade Secrets," how post-AIA, parties may assert trade secret misappropriation claims and patent claims over preferred embodiments.  Third, the AIA creates broad prior user rights which allow parties exploiting a secret invention to continue to use that invention even after a third party patents that invention.  Under U.S. law before the AIA, the first inventor that secretly exploited the invention without seeking patent protection could be sued for patent infringement by the second inventor who was first to patent.
Additionally, a recent decision by the U.S. district court in Helsinn v. Dr. Reddy's and Teva (as extensively covered by Patently-O) interprets AIA prior art provisions to overrule the venerable Metalizing Engineering Co. v. Kenyon Bearing & Auto Parts case. Metalizing held that an inventor's non-informing exploitation of the invention was patent defeating prior art against the inventor.  As Maier notes, "not only could an inventor secretly practice the invention without impact to his right to seek patent protection later, but he could also theoretically sell the invention, assuming that sale is not an open sale to the public, but rather a secret sale (for example, the sale of inventive manufacturing equipment from one corporation to another pursuant to a confidentiality agreement and without that equipment becoming "'available to the public.')." These developments make trade secrecy an attractive option.

Curious--they are all the same rank.
Finally, the recent U.S. Supreme Court Association for Molecular Pathology v. Myriad Genetics case concerning the patentability of isolated sequences of DNA is interesting.  In Myriad, Associate Justice Thomas held that isolated genomic DNA was not patentable; however, cDNA ("cDNA is a double stranded DNA synthesized from a messenger RNA template") was patentable.  The distinction made by the court is curious.  cDNA may not exist in nature, but it likely fails the Mayo Collaborative Services v. Prometheus Laboratories test for patentability for lack of an inventive concept--or at least an extension of the case (is it also markedly different?).  Importantly, Professors Rebecca Eisenberg and Christopher Holman state that a possible explanation for this distinction by the U.S. Supreme Court is to ensure that therapeutics in particular--protected by product patents--receive strong patent protection.

This is all quite curious.  Could it be a conspiracy?!  Strong product patent protection for biologics combined with more robust trade secret protection for biologic-related processes and materials--the future of the bio-pharmaceutical industry because of the drying up pipeline for small molecule drugs.  For those who have played the game Clue (or Cluedo) or watched the movie, you'll know it was Colonel Klink, Colonel Sanders and Colonel Mustard in the dining room with a candle stick!  Should we spend more time and effort discussing this issue before passage of the DTSA?  What does it mean for trade secrets and the EU? [I am grateful for Professor Sharon Sandeen's comments concerning this issue.]


Tiny said...

The US has always moulded patent and IP laws to best protect its companies. The increase in foreign companies applying for patents there means a decrease in the power of patents is needed. The ability of foreign companies to adopt technology created in the US means trade secrets is now favoured. In the long run though protectionism will only hurt US industries as they become less competitive.

Mike Mireles said...

Thank you for your comment. So, we have the confluence of several factors: first, the U.S. spends an incredible amount of money on biotechnology research and development (private and public funding) (Germany has spent quite a lot as well and other EU countries); second, the U.S, I believe, has the largest number of biotechnology companies in the world; however, countries in the EU are doing well also; third, world-wide patent protection is very expensive, particularly for new biotechnology companies; fourth, biotechnology patent protection has been hit or miss; fifth, perhaps we don't want to disclose by patent what we can now keep secret (very well through the DTSA) because infringement is so difficult to detect anyway for some types of biotechnology processes and/or research tools (assuming patentable).

So, putting some flesh on the theory, under the AIA and Helsinn a biotech company (small fry) can develop something and then sell it to a pharmaceutical company--this would arguably not be patent defeating. Then, it seems, that the pharmaceutical company (or larger biotechnology company), assuming whatever was purchased, could continue to develop it. The pharmaceutical company could then hold out to patent the biologic until the absolute latest time to preserve the longest possible patent term. Strong trade secrecy is necessary because the biotech company is not seeking patent protection and thus must disclose the trade secret to potential suitors. It also must keep former employees and others from stealing it.

Now, interestingly, for the small biotechnology company that spins off of a university, trade secrecy is what you want. But, to secure venture capital, you must disclose the trade secret to venture capitalists, thus you need strong trade secrecy protection again. This is interesting because patents previously served as signals to venture capitalists that the company has expertise, something valuable etc. (but difficulty with patenting has hurt this). So, will university tech transfer offices tell academics to rely on trade secrecy and not publish some research results?

Next, interestingly, some of the most valuable trade secrets will be those held by the firms developing biosimilars--the know how to reverse engineer biologics. I would likely not patent those unless regulatory authorities made me disclose them widely. Interestingly, based on what I've read, from a public policy perspective we should focus public funding on developing widely available technology to reverse engineer biologics.

Thank you for your comment. Warm regards, Mike

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