[author: Joshua Sarnoff]

As promised in our earlier post (see "Professor Sarnoff Provides His Perspective on Tillis Bill"), here we turn to Professor Joshua Sarnoff's thoughts on the portions of Senator Thom Tillis' (R-NC) bill regarding diagnostic method patents.  Those thoughts were presented in abbreviated form in the earlier post because we did not have the space the discussion deserved.  Here they are in full, followed by Kevin Noonan's response.

Professor Sarnoff:  Kevin posits that Mayo (and implicitly Myriad) have adversely affected innovation in diagnostic methods.  Perhaps Kevin is right in regard to venture and other capital investments in developing such methods (but see below that such investment has not been diminished in regard to diagnostics).  But the data shown below tell a different story in regard to whether the restrictions on eligibility have been bad for innovation, at least in the diagnostics space.

To make the point, I quote from the submission of the Association for Molecular Pathology (a trade association for diagnostics developers) on the 2021 PTO Jurisprudence Study request for comments, explaining why innovation and access have expanded, not contracted, for diagnostic tests post-Myriad and Mayo.  This is the only natural experiment that has been conducted in recent memory, so simply stating that investment has declined is not a meaningful response to the argument that innovation has nevertheless increased.  Hopefully, Kevin can respond with actual data to show that the AMP is wrong; if not, hopefully he will revise his views and accept that Myriad and Mayo should be preserved (at least for diagnostics).

AMP strongly supports the Supreme Court decisions in Mayo Collaborative Services Inc. v. Prometheus Laboratories Inc. (Mayo), Association for Molecular Pathology v. Myriad Genetics (Myriad), Inc., and Alice Corp. v. CLS Bank International (Alice).  As professionals developing, validating, and performing laboratory tests, we see no evidence that these court decisions have had a "dramatic negative impact on investment, research, and innovation" as it relates to molecular laboratory testing.  We present the following information to demonstrate that due to the protection afforded by these cases, the field of molecular diagnostics is innovating, growing, and thriving.

In 2001, a survey of 122 clinical laboratory professionals performing genetic testing demonstrated that most felt the patent environment was negatively impacting the cost, access, and development of genetic tests.  Ninety-one respondents said that their laboratories needed to obtain a license to use a patented method, device, or reagent.  A quarter of the respondents had stopped performing a test altogether because of a patent or license.  Moreover, fifty-three percent (53%) of respondents decided not to develop a new clinical genetic test because of a patent or license.  In a thorough assessment by the U.S Department of Health and Human Services Secretary's Advisory Committee on Genetics, Health, and Society (SACGHS) in 2010, the Committee recognized the burden associated with negotiating numerous licenses and how the cost of these endeavors may render a clinically valuable test unworthy of financial investment.  As scientific understanding of genetics and genomics has increased over time, so has an appreciation of the polygenic (involving more than one gene) nature of disease.  In 2021, the prospect of negotiating numerous licenses for multiple genes threatens standard medical practices that have evolved since Mayo, Myriad, and Alice.

Today, in a post-Mayo, Myriad, and Alice world, we are fortunate to have an environment where molecular professionals are not restricted by the existence of gene patents when developing and employing clinical laboratory tests in their practice.  We implore you consider these experiences and case studies . . . .

CGP, WES, and WGS are made possible because information about thousands of genes and the role of various segments of genetic sequences in human health and disease can be incorporated into a single test.  Prior to Mayo, Myriad, and Alice, this was not possible as it would have required a laboratory to obtain a license for every gene patent that existed or to exclude potentially clinically relevant genes from the analysis.  Instead of promoting an environment for growth and innovation, patents on genetic information would have siloed testing and inhibited patient access to more comprehensive testing options.  In fact, since these court decisions, there has been increasing support by researchers and genetic testing laboratories to share and provide open access to information on genetic variants . . . .

The necessity for molecular professionals to operate, innovate, and developed testing for patients in an environment free of considerations related to the patent-status of SARS-CoV2 and COVID-19 disease are crystalized when considering the necessity of frequent shifts in testing strategy due to external challenges experienced repeatedly since February 2020.  AMP members have been on the frontlines of responding to the COVID-19 pandemic by developing and providing molecular-based diagnostics for patients across the United States.  We surveyed our membership multiple times over the course of 2020 and collected over 250 responses from molecular laboratory professionals to understand their successes and hurdles when developing and providing the crucial and timely diagnostic services that patients needed during the COVID-19 pandemic.  In August and April of 2020, respondents reported that supply chain interruptions were having a significant impact on their work -- in August, over 90% reported that interruptions delayed and/or decreased testing.  Similar responses across all laboratory types indicated that additional resources were needed to implement and/or maintain testing, with commercially-available testing kits and platform-specific laboratory consumables identified as the most needed items.  To overcome testing supply shortages and maintain their testing capacity, molecular professionals deployed multiple testing methodologies, i.e. they built redundancy in test protocols within their laboratories in order to switch to a different testing platform when a shortage compromised use of another one.  Many used more than three methods, which were often a combination of both commercially available testing kits and laboratory developed testing procedures that they designed and validated in their own laboratories.  Our findings indicated that testing diversity continues to play an important role in the public health emergency to meet the clinical need.  If laboratories and manufacturers needed to navigate multiple patent and licensing arrangements related to SARS-CoV-2 RNA sequence with each assay adjustment or introduction, the observed testing response would not have been possible.

Kevin Noonan's response:  Before turning to the contrary data, a few points are important.  Everyone's opinion is necessarily informed by their experience, and it is not surprising that doctors believe that their mission to save lives is paramount.  Fortunately, this does not extend to burglarizing pharmacies to get drugs for patients that cannot afford them, but there comes from many doctors a whiff of "white coat immunity" when making their arguments, particularly where patents are concerned.

Also, there are the considerations that companies like Myriad can do a more consistent job in providing reliable diagnostic information than "home brew" testing done by physicians, who after all are trained and thus much better at making differential diagnoses and giving appropriate treatments than they are at performing controlled diagnostic assays.  Which is why most diagnostic tests are performed by big companies like LabCorp and Quest Diagnostics rather than in university hospitals and clinics (and even in the latter case the tests are typically performed using test kits produced and sold by such companies).

Finally in this regard, the effect of the Mayo/Myriad/Alice trio of Supreme Court opinions has been that these companies now have the type of free rein all companies used to have regarding university-based research (including associated teaching hospitals) prior to enactment of the Bayh-Dole Act.  As a consequence, companies who licensed university technologies became easy prey to the biotechnology equivalent of "efficient infringers" and were subject to the expected consequences.  The poster child for these consequences is of course Sequenom, which lost so much of its value after its foundational patents for detecting cell-free fetal DNA in maternal blood were invalidated that it was acquired by LabCorp.

And I think it more productive to leave the COVID experience to another time, it being a black unicorn, once-in-a-century event that makes it less productive for understanding events in more normal times.

The countervailing evidence to the arguments made by AMP quoted by Professor Sarnoff is enumerated below.

Appropriately we begin with a law review article by David O. Taylor, Associate Professor of Law at the SMU Dedman School of Law (D.O. Taylor, Patent Eligibility and Investment, Cardozo Law Review 41: 2022-104 (2020).  In his article, Professor Taylor reviews recent Supreme Court case law on subject matter eligibility and its negative effects in cases like Ariosa v. Sequenom.  The Professor presents three principal findings regarding the effects of these cases on investment:

First, "the investors who responded to the survey overwhelmingly believe patent eligibility is an important consideration when their firms decide whether to invest in companies developing technology.  Indeed, overall, 74% of the investors agreed that patent eligibility is an important consideration in firm decisions whether to invest in companies developing technology; only 14% disagreed.  Likewise, investors reported that reduced patent eligibility for a technology makes it less likely that their firm will invest in companies developing that technology.  For example, overall 62% of the investors agreed that their firms were less likely to invest in a company developing technology if patent eligibility makes patents unavailable, while only 20% disagreed."

Second, "reduced patent eligibility correlates with particular investment behaviors in particular industries.  Investors overwhelmingly indicated, for example, that the elimination of patents would either not impact their firms' decisions whether to invest in companies or only slightly decrease investments in companies developing technology in the construction (89%), software and Internet (80%), transportation (84%), energy (79%), and computer and electronic hardware (72%) industries.  But investors, by contrast, overwhelmingly indicated that the elimination of patents would either somewhat decrease or strongly decrease their firms' investments in the biotechnology (77%), medical device (79%), and pharmaceutical industries (73%).  Thus, according to these investors, on average each industry would see reduced investment, but the impact on particular industries would be different.  And the life sciences industries are the ones most negatively affected."

Third, "[a]lmost 40% of the investors who knew about at least one of the Court's eligibility cases indicated that the Court's decisions had somewhat negative or very negative effects on their firms' existing investments, while only about 15% of these investors reported somewhat positive or very positive effects.  On a going-forward basis, moreover, almost 33% of the investors who knew about at least one of the Court's eligibility cases indicated that these cases affected their firms' decisions whether to invest in companies developing technology.  These investors reported primarily decreased investments, but also shifting of investments between industries.  In particular they identified shifting of investments out of the biotechnology, medical device, pharmaceutical, and software and Internet industries."

Fourth, "investors familiar with the Supreme Court's eligibility cases indicated different changes in firm investment behavior as compared to investors without this familiarity [albeit these data were garnered with regard to software and the Internet and are presented here for completeness]."

The article provides copious amounts of evidence for these conclusions that are of course outside the limits of this post.  But the Professor's conclusion is as succinct as it is depressing:

In the meantime, the major takeaway is clear:  The Supreme Court's "drastic and far-reaching experiment in patent eligibility standards" has likely resulted in lost investment in the life sciences that has delayed or altogether prevented the development of medicines and medical procedures.

A law student Note, having perhaps a little less gravitas, is in agreement.  In "The Impact of Uncertainty Regarding Patent Eligible Subject Matter for Investment in U.S. Medical Diagnostic Technologies Matter for Investment in U.S. Medical Diagnostic Technologies," Washington and Lee Law Review 79: 397-451, A. Sasha Lee focuses on the uncertainty the Supreme Court's Mayo/Myriad/Alice quarto (including Bilski for good measure) has engendered and the harm it has and will cause.  Ms. Lee characterizes her Note as "an empirical study of venture capital investment in disease diagnostic technologies before and after Bilski and Mayo."  The Abstract sets forth her conclusions:

This Note presents five key implications related to its central finding.  First, the data supports the recent calls to Congress for reform of § 101.  Second, it complements other key research regarding investment behavior following Mayo and Alice.  Third, the data raises the question whether remaining innovation in the diagnostics space will be enough to support the precision medicine movement.  Fourth, underinvestment in diagnostics and the discovery of disease biomarkers may lead to underinvestment in treatments.  Lastly, this Note's findings suggest that at least some venture capital firms employ greater caution when determining whether to invest in a company developing (or aiming to develop) diagnostics, which may spur hesitancy to form such companies in the first place.

The focus of these scholars is investment, which the AMP says is not important for developing diagnostic methods.  Perhaps, but perhaps only for well-established large diagnostics companies encouraged and enabled by academic research no longer protectable by patent and precluded by culture and ethics from being kept as trade secrets.  But it is good to remember that:

For better or worse, we live in a world that Myriad made.  In 1997, genetic diagnosis of cancer risk was in its infancy; traditional genetic linkage analysis had been successfully performed for diseases like Huntington's disease and other rare genetic diseases.  While some academic researchers had identified genes involved in cancer, these were typically loss-of-function mutations in several (~5-6) genes.  BRCA gene analysis was different, because it predicted with ~90% certainty that an affected woman would develop breast or ovarian cancer.  These biological consequences suggested radical prophylactic methods for prevention, each of which involved medical and personal costs.

Myriad was thus in the position of having to convince doctors that their test was beneficial and was sufficiently predictive to justify both the diagnosis and the treatment.  It also required that Myriad establish a network of genetic counselors capable of interpreting the genetic information and counseling affected women (and in the context of there being the "variations on unknown significance" that occurred at much higher frequency then than it does 16 years later).  And it required Myriad to lobby governments and private payers that the cost of Myriad's test was justified by the lower medical costs of prevention (which were not inconsiderable) than treatment of breast or ovarian cancer (because the personal costs were not the payers' problem and the alleviation of which not their perceived responsibility).

Myriad asserts that it spent about half a billion dollars to establish its business including all these ancillary costs on top of the scientific and technology costs.  Myriad did not spend this money due to altruism; like it or not, basing a society on the principle of "from each according to her abilities, to each according to her needs" was tried, famously, in the Twentieth Century with disastrous results.  But if we turn the clock back and let major medical centers in New York, and Boston, and San Francisco, and New Haven, and Bethesda develop BRCA testing, is there any hope or realistic expectation that women in Appalachia, or Oklahoma, or rural communities throughput the country would have had better, or even equivalent access to such testing?

See "Why Does Myriad Think It Can Win BRCA Gene Lawsuits?"

Turning to innovation instead of investment, and some of the arguments made in favor of the status quo of diminished eligibility thereupon, it would be good to consider these data:

• A 2002 study undertaken by the German government, to determine whether patents on DNA molecules impeded entry into particular fields of research in which isolated DNAs had been patented found that DNA patents created no such barriers to entry.  The great majority of those interviewed across the entire surveyed group clearly favored the so-called "absolute product patent protection" of genes.  Strauss et al., "Genetic Inventions and Patent Law: An Empirical Survey of Selected German R & D Institutions," Max Planck Institute for Intellectual Property, Competition and Tax Law (2002).  Similarly, in 2002, the OECD Working Party on Biotechnology Report (OECD Report), despite documenting a number of specific concerns held by researchers, failed to substantiate fears that growth in the number and complexity of biotechnology patents is preventing access to inventions for research purposes.  Organisation for Economic Co-operation and Development, Genetic Inventions, Intellectual Property Rights and Licensing Practices: Evidence and Policies (2002), 12–15.

• A 2005 survey of academic researchers conducted by Walsh, Cho, and Cohen concluded that "patenting does not seem to limit research activity significantly, particularly among those doing basic research," with only 1% of their random sample of 398 academic respondents reporting a project delay of more than a month due to patents on knowledge inputs necessary for their research, and none reporting abandoning of a research project due to the existence of patents.  John P. Walsh et al., Final Report to the National Academy of Sciences' Committee Intellectual Property Rights in Genomic and Protein-Related Inventions: Patents, Material Transfers and Access to Research Inputs in Biomedical Research (Sept. 20, 2005).

• In 2006, David Adelman and Kathryn DeAngelis published a detailed study of over 52,000 biotechnology patents granted in the U.S. between January 1990 and December 2004.  In the words of the two authors, their study described "the general trends in biotechnology patenting including patent counts, patent-ownership patterns, and the distribution of biotechnology patents across distinct areas of research and development."  They concluded:  "This analysis finds few tangible signs of patent thickets that define the anticommons" (Adelman and DeAngelis, Patent Metrics: The Mismeasure of Innovation in the Biotech Patent Debate).

• A 2006 report by the National Research Council found the "number of projects abandoned or delayed as a result of difficulties in technology access is reported to be small, as is the number of occasions in which investigators revise their protocols to avoid intellectual property issues or in which they pay high costs to obtain intellectual property."  Reaping the Benefits of Genomic and Proteomic Research: Intellectual Property Rights, Innovation, and Public Health at 134 (2006).

• Another 2006 study (Caulfield, Cook-Deegan, Kieff and Walsh, Evidence and Anecdotes: An Analysis of Human Gene Patenting Controversies, Nat. Biotechnol. 2006 Sep; 24(9): 1091, surveyed the current scholarship and concluded based upon existing conditions that policy recommendations for patent reform surrounding genetic patents have largely been driven by a small number of high-profile incidents and controversies and that these anecdotes do not accurately reflect the larger realities surrounding patenting in biotechnology.  Regarding the oft-stated fears of a developing anticommons logjam, Caulfield et al. concluded that the effects predicted by the anticommons problem are not borne out by the available data.

• A 2009 Canadian report on researcher perspectives on commercialization and patenting of genomic research similarly found that there is little evidence that the progress of research itself is in fact being seriously hindered or that gene patents are being aggressively enforced.  CJ Murdoch et al., "Commercialization, Patenting and Genomics: Researcher Perspectives," Genome Medicine 1:22 (2009).

• The FTC subsequently concluded that concerns that patenting upstream technology, or "research tools," would actually obstruct commercialization of new products and hinder follow-on innovation in biotechnology "has yet to materialize."  Emerging Health Care Issues: Follow-on Federal Trade Commission report on follow-on biologics, June 2009, at 32.

• Of some 40,000 DNA-related patents, only six have been litigated in the diagnostic testing area.  "Property rights: The granting of patents on human genes has so far not been the disaster it was predicted to be."  458 Nature 386 (2009).

• In a 2010 series of case studies on the impact of DNA patents on genetic research, diagnostic test development, and patient access to genetic testing services published as a special supplement in Genetics in Medicine (vol. 12 (4), April 2010), the authors, despite identifying several particularized concerns about licensing practices relating to some individual gene patents, found little systemic negative impact of gene patents on genetic research, test development, patient utilization, and pricing of testing services.

• An exhaustive 2019 study by Sampat and Williams concludes that human DNA patents do not appear to have hindered follow-on innovation, while on the other hand trade secrecy protection of human genetic sequences induced measurable declines in follow-on scientific research and product development.  The authors write that "this pattern of evidence suggests that changes to patent policy must carefully consider what strategies that firms will use to protect their discoveries in the absence of patents, and that an understanding of the relative costs and benefits of patent protection compared to [the alternative option of trade secrecy] is needed in order to evaluate the welfare effects of patent policy changes."  B. Sampat and H. Williams, "How Do Patents Affect Follow-On Innovation? Evidence from the Human Genome," American Economic Review 2019, 109(1): 203–36.

The facts seem to bear out that while some (particularly doctors) have raised possibilities that potential negative effects on innovation might arise due to patenting, these seem not to exist when scrutinized outside the biases carried by those discerning these possible negative outcomes.

It is clear this debate will be on-going, as this bill advances (although it is likely not to get to the House floor in the time remaining in this Congress).  But the effort to bring some clarity and certainty to subject matter eligibility is one that is both worthwhile and necessary and can be expected to continue.

Hat tip to everyone who provided some of the evidence set forth in this post, and thanks to Professor Sarnoff.