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Intellectual Property Issues: Clearing the Primary Hurdle to Drug Development

Managing Editor

The RNAi patent litigation market gets off to a thriving start

The fact that there are presently more RNAi litigation cases than there are RNAi products, or even relative clinical trials, puts a perspective on the state of the technology and industry, as well as the impending importance of intellectual property issues on the future of therapeutic development.

Litigation in the current patent landscape is the major issue facing RNAi technology, as there is confusion over inventorship, conception and patent recognition, as companies jostle for positions of advantage in this emerging biotechnology sector.

In this market, there are presently many active lawsuits awaiting culmination and there are hundreds of RNAi-related patents on file with the United States Patent and Trademark Office (USPTO), and the outcome of these suits will ultimately demarcate the line between proprietary owners, licensees, partners and perhaps even outright losers as companies approach clinical trial readiness.

A large number of the lawsuits follow a pattern of infringement in which, for example, Company A files a patent for Technology 1 and subsequently discovers that Company B is pursuing research using a technology that so closely resembles Technology 1 that Company A feels their exclusively patented position has been violated.

The patent is valid; therefore, a favorable ruling for Company A is expected, but rather than issue a cease and desist ruling against Company B that would prohibit further research on their part and yield little compensation for Company A, an agreement is reached in which Company B is allowed to continue its research by licensing the technology and agreeing to a combination of up-front and future payments.

Company A benefits from revenue generated by any marketed product delivered by Company B's Technology 1 research, while both companies are unhindered by any litigation as they pursue their R&D activities.

The path from court to clinic is muddled, but not unmanageabl

Unawareness of existing technology claims usually does not excuse infringement, unless there are palpable mitigating circumstances that inhibited detection of ownership; so from an analytic point-of-view, the most cautionary general observation would be to bet on the plaintiff in most cases, rather than patent invalidity or inapplicable research rulings.

Following that line of reason, a scenario of license agreements as resolution would be projected to predominate in these existing cases and there would be minimal, if any, decisions rendered that would be considered fateful enough to sequester research, send companies spiraling into insolvency or derail the RNAi industry.

The projected legal outcomes might, however, cause a slight hierarchy shift that would be manifested in the next few years when the industry is primed to experience notable growth, but barring the revolutionary meteoric development of a surprise drug candidate, a radical shift in industry prominence among RNAi companies is not forecasted.

Assuming the trend in litigation resolution continues, respective reagent companies would benefit from increased demand for RNAi laboratory research products, due to R&D acceleration and expansion, and an increased number of licensees that would enter the market once technology ownership issues are legally confirmed.

Such a projected market proliferation would enhance the individual value of RNAi companies, but would not necessarily change their respective standing in their competitive market segment, given that most defendants in these cases are likely to receive non-exclusive licenses that would not preclude the plaintiff from striking agreements with the defendants' competitors for the same technology.

Considering such an analysis, a more likely scenario for the eventual RNAi reagent market landscape would be a reaffirmation of the current balance of power, inasmuch as all tiers of players will have equal access to licensing opportunities.

Therapeutic companies involved in litigation are likewise not losing ground to companies that are currently litigation-free, inasmuch as they are currently unrestricted by legal edict in pursuing the research in question while the case is determined and are likewise not projected to have post-settlement restrictions imposed under the spirit-of-collaboration trend that is developing.

If the settlement ultimately involves a license agreement, defendant drug discovery companies are not inevitably put in a disadvantageous position juxtaposed to the prominent companies that are not involved in litigation. Even though financial and punitive details are routinely undisclosed, it can be speculated that there is little difference in the applicable research and marketing language, other than specific percentages relative to punitive damages and royalties, of a judicially induced license agreement and one that is voluntarily forged between parties under no legal restriction.

The licensee in both instances is free to practice the technology of the originator and sell any products derived from subsequent development, but must pay a proportion of revenue to the licensor, although it is assumable that the litigation licensee will be subject to higher payouts than his traditional-contract counterpart.

On the other hand, an exception to this settlement trend transpired in October 2004 when Nucleonics Inc., a co-defendant in the case originated by Benitec and the Commonwealth Scientific and Industrial Research Organization (CSIRO) for U.S. Patent Number 6,573,099, titled "Genetic Constructs For Delaying Or Repressing The Expression Of A Target Gene," filed an answer disputing Benitec's ownership claim, rather than settle its portion of the case as did its counterparts, Ambion and GenScript, earlier.

Such variation is factored into forecast and regarded as anomaly, rather than trend, when analyzing the overall market.

How we got here

Many observers believe the intellectual property complications initiated as a result of the fast start of the RNAi industry, in which many companies were engaging in analogous research without the benefit, or concern, of knowing what the others were doing.

When the RNAi phenomenon erupted, therapeutic companies rushed to capitalize on the happening while it was still a ground-floor opportunity, but in many instances, they either failed to acknowledge prior research (other than the work conducted by Andrew Fire and Craig Mello that is widely regarded as founding the RNAi field) that may have been patented or under patent review, or they may have been just unfortunate enough to forge ahead in an industry in which research was developing at a more rapid pace than the industry could be defined.

Under this scenario, one company files a patent application, although multiple companies are working in the same discipline, with, or without knowledge of each others' endeavors. If the USPTO, or corresponding international agency, approves the patent, all companies may have to cease applicable research and proffer recompense, but almost certainly will have to license the technology from the filer in order to continue research activities.

Another inference as to the lack of a clearly defined industry in its beginning stages and resulting awareness of its participants is the now-public information that reagent manufacturers and suppliers may have been unknowingly using the proprietary technology of others in their kits and laboratory tools for years without giving appropriate and legal recognition.

The reason for such type of oversight, or misunderstanding, that set in motion these legal disputes is unclear, inasmuch as no judgments or out-of-court settlements to-date have disclosed information relative to blame, motive or admission of guilt.

It does, however, become public knowledge through freely available information when long-time reagent suppliers such as Ambion, for example, legally acquiesce and seemingly concede technology ownership (re: US Patent No. 6,573,099) to Benitec for products that have already increased Ambion's coffers and are projected to become more profitable as the RNAi market escalates.

The early bird usually gets the patent

Visionary, or opportunistic, RNAi companies began staking technology claims early, as a result of either their own successful internal research, through alignment with scientific pioneers, or by forging licensing agreements with academic institutions that had made significant progress in the field before it became so highly touted.

Benitec is an example of the former group, pioneering in the development of DNA-directed RNA interference. Although the company does jointly own the technology with Queensland's (Australia) Department of Primary Industries, it lays claim to being the first to demonstrate mammalian gene silencing by RNAi and holds the first U.S. patent recognized for RNAi in mammals.

As a result, these relatively few companies are all more than likely enmeshed in some form of legal proceedings, but also are poised to remain at the forefront of the RNAi sector as those legal entanglements are sorted out.

Defendants in these cases usually claim unawareness of any existing patent or enough substantial differences between the two technologies in question to merit individual patent consideration.

With such a new technology and so many participants pursuing research on unexplored ground, it is possible that other companies were concurrently undergoing R&D in the same area as the initial patent filer, without knowledge of impending patents.

This makes it more difficult to prove willful intent to infringe, and a settlement of alliance that affords progress for all parties looms as a better course than a castigatory judgment that may tie up research for years or ultimately take away research programs that are legally ascertained to be the result of infringement.

Companies ready to protect their technology, but willing to share afterwards for a price

There is, however, promising evidence of a less muddled future, inasmuch as there has been increasing activity in settlement proceedings recently. Many industry observers had been stressing the importance of collaborating in order to reach the ultimate goal of providing human therapeutics in a timely manner, and it seems that the recent settlements suggest the parties in litigation have been listening.

A common concern was that the desire to be the "first" to clinical trials might hinder research that could benefit from pooled knowledge that would result in faster development; however, the message that time-consuming court proceedings could likely delay a litigant's therapeutic development timetable may have been absorbed.

Benitec, with its proprietary technology known as DNA-directed RNAi (ddRNAi) and applicable in biomedical and therapeutic applications, has been actively resolving a number of litigation cases lately, as the company seeks to complete a planned move to the United States and also stay on target for therapeutic candidates to have filed INDs for clinical trial commencement by the end of the year.

Benitec was the first company to trigger RNAi in mammalian cells and in whole mammals and the company initially patented its ddRNAi platform technology in 1998, which afforded it a headstart in the field and also accounts for its large number of patent litigation cases.

In partnership with the CSIRO, Benitec holds the only issued patents in the U.S. and UK covering RNAi in mammalian cells, and currently owns eight issued patents in five jurisdictions, including the U.S., U.K. and Australia. An additional 65 RNAi-based patent applications are in advanced stages of prosecution in 14 other jurisdictions.

Benitec, in August 2004, settled claims against Ambion, and GenScript in the form of licensing agreements that allowed continued research for all parties, but left financial details undisclosed, and a similar settlement against Nucleonics, Inc., the third defendant in that specific patent infringement dispute, Benitec Australia, Ltd. v. Nucleonics, Inc., Ambion, Inc. and Genscript Corp., Civil Action No. 04-174-JJF, for which Benitec filed suit on March 22, 2004 in the U.S. District Court for the District of Delaware, is expected soon.

Benitec has entered into a slew of agreements, in which it licensed its ddRNAi technology, and the company anticipates granting additional ddRNAi licenses in the future through litigation resolution, as well as business development deals.

In June, Benitec, in collaboration with Promega Corp., granted Merck & Co. Inc. a worldwide non-exclusive research license to practice DNA-directed RNAi technology. This potentially blockbuster deal allows Merck the freedom to use ddRNAi in undertaking research activities throughout its global operations, but does not provide downstream commercial rights for therapeutic development.

Benitec Chairman and CEO John McKinley said in a released statement, "This is an important milestone for Benitec, inasmuch as it confirms the importance attached to ddRNAi for its research applications capability and for its future potential for therapeutic development. This lends support to Benitec's leading position in ddRNAi and while our longer term goal is to develop RNAi-based therapeutics for serious diseases, we will continue to support our in-house programs by earning the maximum possible revenue from this important technology and our issued patent estate through licensing and other commercialization activities. We are delighted Merck has entered into this."

Industry observers see little downside for first-wave RNAi companies that were at the forefront of the industry and were subsequently able to stake technology claims that which be acknowledged by businesses that conduct similar research, but were late in filing patents.

Companies such as Benitec, CytRx Corp. and Alnylam Pharmaceuticals Inc. are in great position to not only proceed with their own promising research programs, but also to financially capitalize on numerous licensing agreements that stand to become little-or-no-risk revenue generators that augment primary resources.

Patent pools can steer companies clear of litigation

Richard Warburg, partner at Foley & Lardner, an interdisciplinary law firm with expertise in intellectual property litigation, predicted earlier this year that companies embroiled in the IP morass would soon begin the conciliatory process in order to remove potential obstacles that threatened to impede the therapeutic development of RNAi candidates.

Warburg suggested several ways to eschew confrontation and costly delays, including concession in order to settle litigation, increased willingness to license technology and participation in patent pooling.

Patent pooling is defined by the U.S. Patent and Trademark Office (USPTO) as the amalgamation of intellectual property rights for the purpose of direct cross-licensing between patentee and licensee or through mutual joint venture agreement involving multiple parties, set up specifically to administer the relative participants.

A simpler description is as an agreement between two or more patent owners to license one or more of their patents to one another or one or more third parties.

A basic definition is a licensing agreement between patent holders. Negotiation beats litigation.

"Patent pooling may seem like a compromise, but a portion of the most promising technology right now beats either none or valuable time lost in litigation at the most crucial time," he said.

Warburg said although patent pooling has anti-trust overtones in its traditional definition, it is nonetheless a practical and legal tool that, when implemented, affords the owners an enforceable means to block everyone else from freely practicing in a designated field without permission and, equally important, compensation.

He noted, as a reference, that the procedure is used in CD-ROM technology, in which everyone wants to use it, and will pay a fee to do so, as long as the cost is non-prohibitive; on the other hand, contemplate only one company being able to create CD-ROMs, and the resulting lack of competitive innovation and consumer price control.

The USPTO undertook an aggressive campaign to encourage biotechnology patent pooling, including the commission of a white paper titled, "Patent Pools: A Solution to the Problem of Access in Biotechnology Patents?"

In the paper, the authors stated that the social and economic advantages of the arrangements outweigh their costs, and listed the four benefits obtained through the business device.

The first benefit was the elimination of problems caused by "blocking" patents or "stacking" licenses that can allow the owner to hold rights to an industry's building blocks and possibly prevent others from bringing derivative products to market, resulting in monopolistic situations, lack of competition and prevention of technology expansion into supplementary applications.

The second benefit of patent pools is their potential to appreciably reduce several aspects of licensing transaction costs by eliminating litigation expenses that drain capital and divert funds from research, thereby stagnating research in many instances.

Another benefit of patent pooling is listed as the distribution of risks, increasing the likelihood of recovering some R&D costs through participation in a patent pool royalty pot arrangement.

The final benefit of this type of agreement is an institutionalized exchange of technical data not covered by patents. Trade secrets would be diminished, in that members would voluntarily share more information and lessen the opportunity for overlapping research.

The paper also listed, and rebutted, some primary criticisms of patent pooling, citing the theory that they could shield invalid, or weak, patents that otherwise would have been exposed in court; however, it offered that the appointment of an independent expert to select, evaluate and monitor pool patents would eliminate that concern.

The paper countered the criticism that such pools eliminate competition by encouraging collusion and price fixing by referring participants to the IP Guidelines that detail the penalties for deliberate formation of anti-competitive patent pools and antitrust violations.

The USPTO paper concluded biotechnology patent pools could facilitate the interests of the public by allowing ready access to proficient licensing environments that have a greater amount of proprietary subject matter, while patent holders would be served by privilege to licenses of other patent holders proprietary subject matter.

According to the paper, the end result renders greater innovation, parallel research, decreased patent bottlenecks, and quicker product development.

Focus on R&D caused some companies to overlook IP infringement landscape

Warburg attributes at least some of the IP turmoil to an unfamiliarity of RNAi scientists with the status, or even existence, of patents, as they pursue research without fully investigating the patent landscape. He said many individuals within the corporations who actually use the technology may be putting their firms at risk of litigation because it is technically someone else's responsibility, such as lawyers or executives, to examine the patent landscape and determine an infringement-free course.

While the lawyers may be disseminating the patent puzzle, the scientists, at the same time, have no knowledge of the relative legal landscape, as their concentration is focused solely on the progression of research that will develop their science into a clinical trial candidate, and eventually a marketed product, he said.

He cited, as an example, that a large firm could buy an RNAi kit that could expose the company to infringement accusations or relinquishment of all discoveries derived from the technology, as a result of pending litigation or an existing patent that is not yet widely associated with the technology.

Warburg referenced more than a dozen incidents involving patent oppositions, interferences and litigation, and related them to the difficulty associated with biological applications, particularly with regard to getting the word out to an immense number of industry players that a claim has been staked.

Warburg also discounted the theory that the USPTO was a culprit in the current chaos and said, against public perception, a government agency was actually aggressively and effectively working to eliminate a quagmire.

"The U.S. Patent and Trademark Office, over the last few years, has actually increased its number of patent attorneys, while decreasing the waiting time for decisions, in spite of its continuing tradition of training its employees, then losing them to private corporations," Warburg said.

Not everyone is in litigation, but is there a significant advantage?

Although the IP landscape is embroiled in disputes, there are some companies that are in advantageous positions as strong plaintiffs, and some of the leaders in the field are even litigation-free and patent-laden.

Sirna Therapeutics Inc. possesses more than 30 issued patents and has filed more than 50 patent applications covering various aspects of RNAi technology, including chemically stabilized RNAi constructs, methods of synthesizing RNAi constructs, application of RNAi for specific therapeutic targets and target discovery-yet the company is involved in no legal proceedings related to RNAi patent issues

Sirna has rights to more than 200 issued, allowed or pending patents covering various aspects of the RNA technology (including RNAi and ribozymes), such as synthesis, delivery, methods of production and relative use, including applications to human therapeutics and diagnostics, agriculture and animal health.

These patents afford Sirna with a broad and strong intellectual property protection in the field of nucleic acid R&D and allow freedom in planning corporate strategy.

The company seems to be in a close proximity to the R&D pace of Acuity Pharmaceuticals Inc, as both companies recently filed the first-ever INDs for an RNAi product-a therapeutic for AMD.

Despite the similarities, the two companies have not wound up in court because there are some differences in the two technology approaches, relative to technology foundation, delivery and technique; however, as eventual clinical trials advance, it is possible that some type of license agreement will brokered if one of their pipelines begins to accelerate in efficacy.

CytRx appears to be a company that exploited IP well to its advantage, in that it built its foundation on a strong license alliance with the University of Massachusetts Medical School (UMMS), sowing up rights to the pioneering RNAi work of the institution, has avoided, like Sirna, any litigation cases to-date, then developed a robust R&D agenda that is evidently attractive enough to lure in big pharma and biotech. Beginning with the innovators and winding up with big pharma is Biotech 101!

The jewel in the notable UMMS agreement seems to be that it does not inhibit CytRx from pursuing agreements with powerful partners down the road, as its research would begin to show promise in human applications.

On the other side of the issue, Benitec owns an impressive list of patents and filings, but is involved in many patent litigations; however, the company is the plaintiff and is in a good position, and willing, to acquire quite a few licensees that provide supplemental research and additional revenue for a win-win situation.

Benitec has begun to settle claims through license agreements, insinuating a validation of its IP legitimacy that could portend advantageous results well into the future in the form of continued licensee contracts, as well as attraction of big pharma/biotech infusion.

Currently, none of the numerous companies involved in patent disputes is experiencing overly contentious litigation, and the values of settlement through license agreement seem to prevail in a trend that should continue, given the high stakes at the present critical juncture of the industry.