Collaborative Licensing in Biotechnology: A Survey of Knowledge, Experience and Attitudes in Australia Dianne Nicol∗ Published in: (2010) 29 Biotechnology Law Report 465-‐483 Centre for Law and Genetics Law Faculty University of Tasmania Private Bag 89 Hobart Tas
7001
Email:
[email protected]
∗
PhD (Biology), LLM, Professor, Faculty of Law, University of Tasmania. This study was funded by the Australian Research
Council (DP0557608 and DP0985077) and was undertaken in collaboration with colleagues from the Centre for Intellectual Property Rights at the University of Leuven in Belgium, particularly Professor Geertrui Van Overwalle and Esther van Zimmeren. Ms van Zimmeren took the lead role in drafting the survey instrument. Nicol was funded by the Fund for Scientific Research (FWO Flanders) and the Sixth Framework Programme of the European Union (Eurogentest) for a two-‐week visiting fellowship at the University of Leuven to discuss survey design and undertake preliminary planning. Nicol was a visiting research fellow at the Regulatory Institutions Network, Australian National University, during the writing up phase of this project. Thanks are extended to all participants in this study and to Dr Christine Critchley, Dr Janet Hope, Dr Mark Stranger and Dr Jane Nielsen for providing feedback on the project report. Finally, thanks to Bruce Newey for editorial assistance. This study was approved by the Tasmanian State-‐wide Human Research Ethics Committee.
1
INTRODUCTION PATENTS IN MEDICAL BIOTECHNOLOGY Intellectual property pervades all levels of the innovation cycle in medical biotechnology. An effective patent system is seen by many in the industry as being crucial to reward innovation and encourage research and product development.1 However, it is difficult to measure the extent to which the patent system actually achieves this end. The mantra that strong patent protection is essential to the survival of biotechnology industry participants has been subject to ongoing debate.2 Increasingly, patent rights are being sought by both public and private institutions to protect the outcomes of biomedical research. Patents are sought for biomedical technologies at the upstream end of the research-‐development continuum, including gene sequences, gene products, embryonic stem cell technology, and other research tools like the polymerase chain reaction and recombinant DNA technology,3 as well as for the more traditional downstream medical products, like drugs, vaccines and therapies. However, the legality of patent grants for upstream biomedical technologies remains contentious and is currently the subject of parliamentary review in Australia4 and court action in the US.5 Nevertheless, patents in this 1 For further discussion see Nicol D and Nielsen J (2003). Patents and Medical Biotechnology: An Empirical Analysis of Issues
Facing the Australian Industry. Hobart: Centre for Law and Genetics Occasional Paper No. 6 at 82-‐85. Available at: http://www.lawgenecentre.org/pub.php 2 See, for example, The International Expert Group on Biotechnology, Innovation and Intellectual Property (2008). Towards a
New Era of Intellectual Property: from Confrontation to Negotiation particularly at 35. Available at: http://www.theinnovationpartnership.org/en/ieg/report/ 3 See Nicol and Nielsen, above n1 at 38-‐49. 4 Senate Community Affairs Committee (2009). Inquiry into Gene Patents. Available at:
http://www.aph.gov.au/senate/committee/clac_ctte/gene_patents/tor.htm 5 The first instance decision in Association for Molecular Pathology v United States Patent and Trademark Office US District
Court Southern District of New York (2010) was handed down by Sweet J on 29 March 2010. This case related to patents held by Myriad Genetics, Inc claiming isolated DNA sequences coding for BRCA 1 and BRCA 2 genes, both of which are associated with hereditary forms of breast cancer, together with other patents claiming methods of analyzing those sequences. Sweet J held that both the product and method claims were not patentable subject matter, as required under 35 USC 101.
2
field that fulfill the standard requirements of novelty, inventive step and utility have been granted and are being enforced in many jurisdictions.6 Challenges to the legality of these patents are rare, even in the US where patent litigation is far more common than in other jurisdictions.7 The past two to three decades have seen a massive increase in patent activity relating to upstream technologies. For example, Kyle Jensen and Fiona Murray estimate that by 2005 nearly 20% of all human genes had been claimed in patents granted in the US, with some genes featuring in up to 20 separate patents.8 Michael Hopkins and colleagues also analysed families of gene patent applications in the US, Europe and Japan, and found that, by 2005, 5,669 of those families included one or more granted patents.9 IMPLICATIONS OF PATENTING UPSTREAM BIOMEDICAL TECHNOLOGIES The downstream user’s perspective Patents that include claims to upstream biomedical technologies could facilitate growth of the industry and provide the necessary financial incentive for the development of new healthcare products, but they could also compromise further expansion of the industry if they create 6 For the position in Australia, see Australian Law Reform Commission (2004). Genes and Ingenuity: Gene Patenting and
Human Health. Report 99. Canberra: Commonwealth of Australia. Available at: http://www.austlii.edu.au/au/other/alrc/publications/reports/99/; Nicol D (2005). On the legality of gene patents. Melbourne University Law Review 29:809-‐842; for the US see Secretary’s Advisory Committee on Genetics, Health and Society (SACGHS) (2010). Gene Patents and Licensing Practices and Patient Access to Genetic Tests. Available at: http://oba.od.nih.gov/SACGHS/sacghs_documents.html#GHSDOC_011; for Europe see Nuffield Council on Bioethics (2002). The Ethics of Patenting DNA. A Discussion Paper. London: Nuffield Council on Bioethics. Available at: http://www.nuffieldbioethics.org/fileLibrary/pdf/theethicsofpatentingdna.pdf; Van Overwalle G (2008). Biotechnology and patents: global standards, European approaches and national accents. In Wűger D and Cottier T (eds.) Genetic Engineering and the World Trade System. Cambridge, UK: Cambridge University Press, 77-‐108. 7 Holman CM (2008). Trends in human gene patent litigation. Science 322:198-‐199. 8 Jensen K and Murray F (2005). Intellectual property landscape of the human genome. Science 310:239 -‐240. Also see:
Chandrasekharan S and Cook-‐Deegan R (2009). Gene patents and personalized medicine – what lies ahead? Genome Medicine 1:#92. 9 Hopkins MM, Mahdi S, Patel P, Thomas SM (2006). The Patenting of Human DNA: Global Trends in Public and Private Sector
Activity. A Report for the European Commission. Brighton, UK: SPRU at 14. Available at: http://www.sussex.ac.uk/spru/documents/patgen_finalreport.pdf
3
impediments to research and product development. This could occur if the holders of upstream patents refuse to grant licenses allowing others to use the patented technology, or if they impose onerous license conditions. Effectively such actions could block off whole areas of research and product development.10 Even with more non-‐exclusive licensing practices, impediments to innovation could also arise if the patent landscape is so complex that it would be impossible to license in all necessary technology to secure freedom to operate (FTO), or, even if it were possible, cumulative licensing obligations make it highly unattractive. Stacking of royalty obligations is a particular problem in this regard.11 This can arise if each licensing deal carries with it an obligation to share a percentage of profits made on downstream product sales. A further complication is that, even if it is possible for downstream users to acquire FTO, this, of itself is not necessarily enough. Beyond the information disclosed in patents, users of upstream technologies also need to acquire all of the necessary additional information, know how and materials to be able to utilise them to the fullest extent. There is some evidence that access to materials may have more of a blocking effect than patents,12 although other evidence suggests that patents remain the root cause of such problems, at least in the agricultural biotechnology context.13 These access problems could have social as well as economic consequences in the field of medical biotechnology if they delay public access to new healthcare developments, alongside their impact on the economic viability of the industry.
10 Walsh JP, Arora A, Cohen WM (2001). Effects of research tool patents and licensing on biomedical innovation. In W. M.
Cohen & S. A. Merrill Eds.). Patents in the Knowledge-‐based Economy. Washington, DC: The National Academies Press, 285-‐ 340, particularly at 332-‐335. 11 Heller MA and Eisenberg RS (1998). Can patents deter innovation? The anticommons in biomedical research. Science
280:698-‐701. 12 Walsh JP, Cho C and Cohen WM (2005). View from the bench: patents and material transfers. Science 309: 2002-‐2003. 13 Lei Z, Juneja R and Wright B (2009). Patents versus patenting: implications of intellectual property protection for biological
research. Nature Biotechnology 7:36-‐40.
4
Previous research by the author and her collaborator Jane Nielsen involving surveys and interviews with participants in the Australian medical biotechnology industry suggests that, despite ongoing concerns about the impact of patents claiming upstream biomedical technologies on downstream research and development, ways are being found to work around these impediments in that jurisdiction.14 The Nicol-‐Nielsen study reported liberal licensing of some key patented upstream technologies within the Australian industry. It was also found that some of the other upstream technologies identified as potentially blocking in other jurisdictions (particularly those identified by John Walsh and his colleagues in a similar study conducted in the US15) were either not patented in Australia, or not enforced there, negating the need for licensing. However, the study concluded that increasing complexity of the patent landscape will inevitably create difficulties for the Australian medical biotechnology industry in the future. The Nicol-‐Nielsen study identified the following challenges for the industry: onerous and expensive searching obligations, negotiating difficulties, restrictive license terms, refusals to license and stacking of royalties. Similar research in other countries where upstream biomedical technologies are more routinely patented and more rigorously enforced suggests that market solutions are also being found to work around these impediments, including licensing, inventing around, ignoring ‘bad’ patents and challenging validity.16
14 Nicol and Nielsen, above n1, at 251-‐256. 15 Above n10. 16 See particularly on the US perspective: Walsh, Arora and Cohen, above n10; and on the UK perspective: Intellectual
Property Institute (2004). Patents for Genetic Sequences: the Competitiveness of Current UK Law and Practice. London: Department of Trade and Industry. For information on other studies see OECD (2002). Genetic Inventions, Intellectual Property Rights and Licensing Practices -‐ Evidence and Policies. Paris: OECD. Available at: http://www.oecd.org/dataoecd/42/21/2491084.pdf; National Research Council, Committee on Intellectual Property Rights in Genomic and Protein Research and Innovation (2005). Reaping the Benefits of Genomic and Proteomic Research. Washington, DC: National Academies Press; Caulfield T, Cook-‐Deegan RM, Keiff FS and Walsh JP (2006). Evidence and anecdotes: an analysis of human gene patenting controversies. Nature Biotechnology 24:1091-‐1094; SACGHS, above n6.
5
The upstream owner’s perspective The Nicol-‐Nielsen study also considered the impediments faced by the holders of upstream biomedical patents and their licensees in translating their technological advances into new healthcare developments. The study found that there are many obstacles for the developers of new biomedical technologies on the road to product development. For instance, securing patent rights is problematic for public sector organizations and small biotechnology companies because it expensive and requires careful management. However, patents are seen by many in the industry as essential for attracting venture capital and industry partners. It may well be the case that patents are actually more important for these purposes than for what is normally thought of as their primary purpose: providing a zone of exclusivity around the patented invention. There is increasing discussion of the possibility of utilising strategies other than patenting for facilitating innovation at the interface between basic and applied biomedical research. In particular, public-‐private consortia are being established for the purpose of generating the core upstream biomedical data that are essential inputs in many downstream research projects. Examples include the HapMap Project, the Structural Genomics Consortium and the 1000 Genomes Project.17 The provision of open access to data and undertakings not to patent basic research outputs are seen as core obligations for involvement in such projects.18 Public, private and charitable funding is crucial to the success of such large-‐scale ventures. Patents are likely to continue to be seen as essential for participants in many areas of biomedicine outside of these large-‐scale data-‐generating ventures for disseminating
17 For further information on the HapMap Project see: http://hapmap.ncbi.nlm.nih.gov/; on the Structural Genomics
Consortium see: http://www.thesgc.org/; on the 1000 genomes project see: http://www.1000genomes.org/page.php. 18 Edwards AE, Bountra C, Kerr DJ and Wilson TM (2009). Open access chemical and clinical probes to support drug
discovery. Nature Chemical Biology 5:436-‐440.
6
technological innovations and generating revenue.19 But securing patent rights is not an end in itself; finding partners and negotiating suitable licensing arrangements for such patents can be equally as costly and time consuming for the patent holder licensor as it is for the licensee. There may also be inequality of bargaining power, particularly where public sector organizations or small upstream biotechnology companies have to deal with large pharmaceutical companies. In addition, enforcement of patents claiming biomedical research tools is notoriously difficult because use generally occurs in secret behind laboratory doors. On the one hand, then, without patents, there is a risk that important biomedical innovations may never reach the marketplace. But on the other hand, there is a risk that the complexity of the patent landscape and the difficulties involved in negotiating patent licenses will create holdups both for upstream innovators in disseminating their new technological developments and for downstream innovators in securing FTO. Sector-‐specific considerations Patents over upstream technologies are likely to impact differently on innovation in different sectors of the medical biotechnology industry. The diagnostics sector is frequently singled out for special consideration. There is concern that patents claiming genes and other upstream technologies could be used to block research and clinical service delivery in this area, particularly if exclusivity is insisted upon. Even with non-‐exclusive licensing, the complexity of the landscape could create unique problems, for example, where multiple tests are included in gene chips. 20 In contrast, in the drug discovery and pharmaceutical sectors, exclusivity is much more the norm. The cost of drug development and regulatory approvals is often used to justify exclusive 19 Nicol D (2009). Strong patent rights, weak patent standards and innovation in biomedicine. In: Arup C and van Caenegem
W (eds), Intellectual Property Policy Reform: Fostering Innovation and Development, Cheltenham, UK: Edward Elgar 55-‐79 at 63. 20 Nicol D (2008). Navigating the molecular diagnostic patent landscape. Expert Opinion on Therapeutic Patents 18:461-‐472.
7
patent practices and aggressive enforcement of patent rights. In the traditional chemical drug discovery and development business model, innovation tends to occur in-‐house and is jealously guarded from competitors. Biomedical drug discovery and development is creating new challenges as innovation moves outside of the large pharmaceutical companies into smaller biotechnology companies.21 Biomedical drug discovery tends to involve multiple parties, including research organizations, biotechnology companies and pharmaceutical companies, often with complex webs of licensing arrangements. While exclusive licensing has been a core feature in the business model of many medical biotechnology companies to date, the lack of progress in the development of new biomedical drugs is raising questions as to the appropriateness of this model.22 In the medical devices sector, the traditional style of in-‐house product development continues and it seems that there has been less opportunity or apparent need to question exclusive patent practices than in other sectors.23 One reason is that the route to market is considerably shorter and less expensive in this sector compared with drug discovery.24 Another reason is that this sector is likely to be less reliant on access to core upstream biomedical technologies than other medical biotechnology sectors. Nevertheless, access to new technological developments could be just as much of an issue for this industry sector as for other sectors in the future, particularly in the areas of microelectronics and information technology. A ROLE FOR COLLABORATIVE LICENSING STRATEGIES? There is a growing body of academic and policy literature that recommends that more open and collaborative strategies for patent management should be considered in the medical 21 Pisano G (2006). Science Business: the Promise, the Reality and the Future of Biotech. Cambridge, US: Harvard Business
School Press, particularly at 81-‐109. 22 Edwards A (2008). Open-‐source science to enable drug discovery. Drug Discovery Today 13:731-‐733. 23 Nicol and Nielsen, above n1 at 111. 24 Nicol and Nielsen, above n1 at 198.
8
biotechnology sector. Nicol and her colleagues Janet Hope and John Braithwaite have been analysing the potential for use of these strategies in the Australian medical biotechnology industry, particularly focusing on clearinghouses and open source-‐style licensing.25 A team led by Geertrui Van Overwalle at the Centre for Intellectual Property Rights at the University of Leuven in Belgium has been conducting similar research on clearinghouse and patent pool models.26 Various international bodies have also called for greater scrutiny of these strategies.27 Academic commentators and policy makers have focused attention on the role of patent pooling.28 Particular attention has also been focused on a potential role for collaborative strategies in diagnostics sector.29 Some uptake of collaborative strategies is being seen in other emerging technology industries, including information and communications technology30 and agricultural biotechnology.31 The 25 Nicol D and Hope J (2006). Cooperative strategies for facilitating use of patented inventions in biotechnology. Law in
Context 24:85-‐112; Hope J (2008). Biobazaar: the Open Source Revolution and Biotechnology. Cambridge, US: Harvard University Press; Hope J, Nicol D and Braithwaite J (2008). Regulatory capitalism, business models and the knowledge economy. In: Braithwaite J Regulatory Capitalism. Chapter 5. Cheltenham, UK: Edward Elgar. 26 Van Overwalle G, van Zimmeren E, Verbeure B and Matthijs G (2006). Models for facilitating access to patents on genetic
inventions. Nature Reviews Genetics 7:143-‐148; van Zimmeren E, Verbeure B, Matthijs G and Van Overwalle G (2006). A clearing house for diagnostic testing: the solution to ensure access to and use of patented genetic inventions? Bulletin of the World Health Organization 84:352-‐359; Verbeure B, van Zimmeren E, Matthijs G, Van Overwalle G (2006). Patent pools and diagnostic testing. Trends in Biotechnology 24:115-‐120; Van Overwalle G (2009). Gene Patents and Collaborative Licensing Models: Patent Pools, Clearing Houses, Open Source Models and Liability Regimes. Cambridge, UK: Cambridge University Press. 27 OECD, above n16; OECD (2006). Guidelines for the Licensing of Genetic Inventions. Paris: OECD. Available at:
http://www.oecd.org/dataoecd/39/38/36198812.pdf; Human Genome Organisation (2003). Statement on the scope of gene patents, research exemption and licensing of patented gene sequences for diagnostics. Available at: http://www.hugo-‐ international.org/img/ip_gene_2003.pdf; World Health Organization (WHO) (2008). Report of the Intergovernmental Working Group on Public Health, Innovation, and Intellectual Property. Geneva: World Health Assembly. Available at: http://www.who.int/gb/ebwha/pdf_files/A61/A61_9-‐en.pdf. 28 Clark J, Piccolo J, Stanton B, Tyson K, Critharis M and Kunin S (2000). Patent pools: a solution to the problem of access in
biotechnology patents. Available at: http://www.uspto.gov/web/offices/pac/dapp/opla/patentpool.pdf; Resnik DB (2003). A biotechnology patent pool: an idea whose time has come? Journal of Philosophy. Science & Law 3. Available at: http://www6.miami.edu/ethics/jpsl/archives/papers/biotechPatent.html; Ebersole TJ, Guthrie MC and Goldstein J A (2005). Patent pools and standard setting in diagnostic genetics. Nature Biotechnology 23:937-‐938. 29 For example, see Ebersole et al, above n28 and the various publications by the Van Overwalle group, above n26. 30 Shapiro C (2001). Navigating the patent thicket: cross licenses, patent pools, and standard-‐setting. In A Jaffe, J Lerner, S
Stern (eds.) Innovation Policy and the Economy. Cambridge, US: MIT Press, 119-‐150.
9
exclusive model of patent licensing seems to continue to find favour in medical biotechnology,32 although research in the US has shown that public research organizations already tend to take a nuanced approach to licensing, with exclusive licenses in some fields and non-‐exclusive licensing in others.33 It is relevant to consider whether there might be less need for employment of collaborative strategies in medical biotechnology compared with other emergent industries. Alternatively, there may be greater unwillingness to move away from the traditional exclusive rights mode in this industry sector, or there may be low levels of knowledge of such strategies, immaturity of the industry relative to other emerging technologies, or a host of other possible reasons. THE PRESENT STUDY This study was undertaken against the backdrop of theoretical concerns about the potential for patents to negatively impact on medical biotechnology innovations and increasing recognition in various sectors of policy-‐making, industry and academia of the value of open and collaborative innovation strategies. It was also undertaken with recognition that participants in the medical biotechnology industry are in a constant struggle for survival. The global financial crisis is likely to see many biotechnology companies fall by the wayside, taking their innovations with them. It is timely to look at different ways of doing business, and collaborative licensing may be one small step on the road to more open innovation, a strategy promoted by Henry Chesbrough and others.34 31 Graff GD and Zilberman D (2001). Towards an intellectual property clearinghouse for ag-‐biotechnology. An issues paper. IP
Strategy Today 1:1-‐38. 32 In Australia, for example, see Howard J (2005). The Emerging Business of Knowledge Transfer: Creating Value from
Intellectual Products and Services. Canberra: Commonwealth of Australia. 33 Pressman L, Burgess R, Cook-‐Degan RM, McCormack SJ, Nami-‐Wolk I, Soucy M et al (2006). The licensing of DNA patents by
US academic institutions: an empirical survey. Nature Biotechnology 24:31-‐29. 34 Chesbrough HW (2003). Open Innovation: The New Imperative for Creating and Profiting from Technology. Cambridge, US:
Harvard Business School Press; Chesbrough HW (2006). Open Business Models: How to Thrive in the New Innovation Landscape. Cambridge, US: Harvard Business School Press.
10
This study asked whether certain sectors in the Australian medical biotechnology industry might benefit from adopting collaborative approaches to IP management. It was undertaken in parallel with an equivalent study conducted by the Van Overwalle group in Europe, with a view to comparing experiences with and attitudes towards patenting and licensing of biomedical technologies in the two regions. It is intended that a comparative analysis of the European and Australian results will be published at a later date. This study sought to: • assess current patenting and patent licensing practices in Australia in the area of medical biotechnology, against the backdrop of the Nicol-‐Nielsen study undertaken in 2002-‐2003; and • evaluate knowledge of, experience with and attitudes towards collaborative licensing strategies that might better facilitate biomedical research and the development of new biomedical products, including drugs, diagnostics and therapies. In particular, the study sought to understand the circumstances that might motivate participants in the industry to become involved with collaborative licensing strategies and the reasons why they might be deterred from becoming involved in such strategies. To achieve these ends, participants in the survey were asked specific questions about their experience and lack of experience with these strategies and general questions about their attitudes towards them. The intention of this study was not to collect representative data on how the industry as a whole might view collaborative strategies. Given that it is made up of a number of disparate sectors, it is unlikely that consistent patterns will be seen across the industry. Rather, the aim of this study was to form a picture of how individual participants in the industry view
11
collaborative strategies and to assess whether any patterns could be detected within and across particular sectors. For example, it might be expected that diagnostics sector participants are more likely to be receptive to collaborative licensing strategies, given that concerns about the burden of third party patent rights are greatest in this sector. On the other hand, the drug discovery and pharmaceutical sectors may be more entrenched in the exclusive model of licensing to ensure that they retain the interests of large pharmaceutical companies in downstream licensing. Medical device sector participants may have some knowledge of the use of collaborative licensing in other areas of high technology and may be willing to experiment with it in biomedicine. There are also likely to be some differences in views on collaborative strategies between the different categories of industry participants. It might be expected that research organizations are more receptive to collaboration than the private sector, because the scientific norm of data sharing should be strongest in the research sector. Private and publicly owned biotechnology company participants may have different views based on different experiences and different needs with regard to attracting funding. The existence of such patterns is explored in the results section of this paper. Three types of collaborative arrangements were considered in this study: cross licensing, patent pooling and clearinghouse mechanisms. Whilst these are not the only collaborative strategies, various other models are conceptually somewhat more complex than the three arrangements canvassed in this survey, particularly open source and related models.35 For this reason, they were not included in the current survey. This is not to say that such models lack merit, but only that opinions as to their efficacy would be better sought through interviews and focus groups.
35 For a detailed account of the potential role of open source-‐style licensing strategies in biotechnology, see Hope, above n25.
12
For the purposes of the present study, the following descriptions were used to introduce the three collaborative strategies. Cross licensing A cross license is a special form of a bilateral license. It is (generally) an agreement between two patent owners. The patent owners grant each other on a reciprocal basis a license for the exploitation of the subject-‐matter claimed in the relevant patents. Both patent owners act as licensor and licensee. This kind of agreement can take place without the exchange of a license fee provided that both patent portfolios are about equal in value. The key features of a cross license are: first, agreement between patent owners, who both act as licensor and licensee and, secondly, cross exchange of licenses. Patent pooling A patent pool consists of a set of agreements. First, by way of a multiparty agreement between two or more patent owners, their patents are licensed to one another and the pool is established. Secondly, a package of pooled licenses is licensed out to third party licensees on a bilateral, non-‐exclusive, non-‐ discriminatory basis. The package license may be granted, either directly by one of the partners representing the pool, or indirectly through an independent licensing authority. The key feature of a patent pool is that it is an agreement between multiple patent owners, which includes: a cross exchange of licenses between the patent owners, and a non-‐exclusive, non-‐discriminatory package license to third parties. Clearinghouses A clearinghouse acts as an independent intermediary (a kind of ‘broker’) delivering various services to patent owners in accordance with their respective needs. The clearinghouse may provide information on patented inventions, market patented inventions, match patent owners (licensors) and users (licensees) of patented inventions, negotiate licensing conditions, develop standard licenses, collect and distribute royalties, etc. Normally a clearinghouse is entrusted with the patent portfolio of several patent owners. Hence, it can license both packages of patented inventions owned by several patent holders or individual patented inventions. Depending on its objectives, business model and management structure, the clearinghouse can be either private or public, profit or non-‐profit. The key feature of a clearinghouse is that it involves an independent intermediary who delivers various patent related services to patent owners and licensees, including third party licenses (package or individual licenses).
13
METHODOLOGY SURVEY INSTRUMENT The study involved an online survey using Survey Monkey software.36 The survey asked general demographic questions about the participating organization, particularly focusing on current research capabilities and patenting. Information was sought on in-‐licensing of patents held by third parties and out-‐licensing of the organization’s own patents. Questions were asked on the extent to which third party patent rights create an ‘undue burden’ on FTO. To assist participants in answering these questions, they were provided with the following information: ‘Freedom to operate’, abbreviated ‘FTO’, means that the commercial production, marketing and use of a product, process or service do not infringe the patent rights of others (so-‐called ‘third party patent rights’). An ‘undue burden’ exists when the number of ‘third party patent rights’ are a substantial obstacle on your organization’s path to research, product development and/or the provision of (clinical testing) services.
These questions were followed by a set of questions for each of the three chosen collaborative licensing strategies: cross licensing, patent pooling and clearinghouses about knowledge of the strategy, experience with the strategy and attitudes towards the overall usefulness of the strategy. Both licensee and licensor perspectives were taken into account. In general, questions were framed in a closed format, although some open-‐format comment boxes were included (and were utilised by a number of participants, as highlighted in the results section). Aside from the open format questions, there were three different types of questions: one response option; more than one response option; and ‘matrix-‐questions’, 36 Further information on survey design is provided in van Zimmeren E, Vanneste S and Van Overwalle G (in press). Patent
Licensing in Medical Biotechnology in Europe. Leuven: Centre for Intellectual Property Rights.
14
where there was more than one response option and participants were asked to provide an answer within a scale. RECRUITMENT Potential participants in this study were identified from an existing database of participants in the Australian biotechnology industry created and updated for use in earlier studies by the author and collaborators. This database was created using data obtained from the Australian Securities and Investments Commission together with publicly available information including material from company websites, industry organizations and industry reports. Potential participant organizations included private companies, universities, research institutes, hospitals, law firms, patent firms, consultancy firms and other unspecified categories. In general, participants were included based on their own self-‐identification as being involved in medical biotechnology. Where possible, email requests to participate were sent to particular individuals within organizations (chief executive officers, chief scientific officers, business development managers, heads of laboratories, legal experts, patent experts, technology transfer experts, consultants IP managers, legal officers, licensing managers) on the assumption that these individuals would be best able to answer the survey questions. However, in a number of instances, only generic contact details could be obtained and in these cases requests were sent to the generic address. Email requests to participate were dispatched in December 2007. Three reminder emails were dispatched in February, April and May 2008. In total, 281 email requests to participate were successfully dispatched (i.e. they did not elicit an automated failure to send response). A total of 59 complete and partial responses were received. Partial responses were only included where participants answered some of the substantive parts of the survey but did not reach the end. These partial completions are included in the analyses presented in the results section of this paper. Where a question is not
15
answered, it is referred to in the results section as a ‘skip’. Response rates differed markedly, with personal requests being far more likely to generate a response than generic requests (29% response rate for personal requests, compared with an 8% response rate for generic requests, with an overall response rate of 21%).37 PARTICIPANTS Individuals Out of the 59 individuals who participated in the survey, those who identified their position within their organization were mostly chief executive officers (13, 22%), business development managers/directors (11, 18.6%), patent experts (eight, 13.6%) or chief scientific officers (seven, 11.9%). This clearly indicates that individuals with relevant expertise within organizations participated in the survey. In the previous Nicol-‐Nielsen study, it was found that in many cases, business, intellectual property and legal managers came from a science background. They therefore had a good understanding of the issues associated with the conduct of research and intellectual property in the relevant field, as well as complex technology transfer issues.38. Organization categories Of the 59 individuals who completed or partially completed the survey, four identified themselves as working in a pharmaceutical company or subsidiary, 17 worked in a publicly listed biotechnology company, 21 were in a private biotechnology company, two were in a 37 The decision to use an online survey may need to be reconsidered in light of response rates and failures to complete. Nicol
and Nielsen obtained somewhat higher response rates in their 2003 study using mail outs of hard copy surveys to research organizations (59% response rate), companies (27% response rate) and diagnostics laboratories (35% response rate), suggesting that this may be a better way of ensuring a reasonably good response rate (it should be noted that the database of companies used in that study was updated and used for the present survey). It seems unlikely, however, that high response rates will be achieved in any study of this nature, which request information from industry participants that is likely to be considered by them to be highly sensitive commercially. Assurances of anonymity may not be sufficient to persuade some would-‐be participants to engage in sharing of such information. 38 Nicol and Nielsen, above n1 at 69.
16
university, one was in a private research institute, six were in a public research institute, one was in a hospital, one was in a consultancy firm. The other six participants, who identified themselves as being in the ‘other’ category worked in the following organizations: a medical device developer and manufacturer; a contract research organization; a private consultancy/contract R&D company; a Cooperative Research Centre; a public/private translational research centre; and an organization involved in pathology and diagnostics. To assist in further analysis, the responses for participants from universities, private research institutes, public research institutes and the two research organizations in the ‘other’ category have been bundled together, for a total of 13 participants in the research sector. Where relevant, participant responses are presented in the results section by category of organization to illustrate similarities and differences in responses between categories. Industry sectors Participants were asked to select from a range of options those that pertained to their sector(s) of operation. Drug discovery, pharmaceuticals, diagnostics and medical devices were by far the most common sectors. As with responses by category, responses by sector are presented in the results section to illustrate similarities and differences. However, because a number of participants identified their organization as working in more than one of these sectors, it was necessary to use filters to isolate meaningful sector-‐specific responses. Three filters were used to identify: • participants in the diagnostics sector who were not also in the drug discovery or pharmaceuticals sectors (referred to hereafter as ‘diagnostic’ – a total of 13 participants); • participants in the medical devices sector who were not also in the drug discovery or diagnostics sectors (hereafter ‘device’ – 14 participants); and
17
• participants in the drug discovery sector who were not also in the medical devices or diagnostics sectors (hereafter ‘drug discovery’ – 11 participants). RESULTS In this section of the paper, a general overview of key results is presented. A complete dataset can be found in: Nicol, D (2010) Patent Licensing in Medical Biotechnology in Australia: A Role for Collaborative Licensing Strategies. Hobart: Centre for Law and Genetics Occasional Paper No. 7, available at: http://www.lawgenecentre.org/pub.php. DEMOGRAPHICS The demographic data summarised below show that most participants in the survey appeared to be at an early stage of R&D in medical biotechnology, with relatively small research teams, modest expenditure on R&D, small numbers of patents and patent applications and low involvement in licensing-‐in and licensing-‐out. Research and development activity The survey began with questions on R&D. The first question asked about the size of the organization’s research team. The majority of participants reported that their organizations had a small number of research staff, of between 1-‐25 scientists and lab technicians. There were two major exceptions. First, in the biotechnology company categories, participant organizations involved in drug discovery tended to have larger laboratories, the majority being in the 26-‐50 employee range. Secondly, there were some larger organizations in the research sector, including universities and collaborative research entities. These organizations would be expected to have a larger number of active research staff across a number of research laboratories.
18
Following on from the question about the organization’s research team, participants were asked to approximate their organization’s annual expenditure on R&D. These data also reflect a fairly small-‐scale financial commitment to R&D by participant organizations, with the two-‐ thirds expending less than AU$2 million per annum. Again, the two clear exceptions are some of the biotechnology companies involved in drug discovery and the research organizations. The distribution of participants based on research team size and expenditure on R&D was similar for both publicly listed and private biotechnology company categories, with a peak of 1-‐10 scientists and lab technicians. Nine of the publicly listed companies and 10 of the private companies fell in this range. There was a slight difference in the peak for R&D expenditure, but what differences there were between the two types of biotechnology companies appear to be fairly marginal, indicating that most biotechnology company participants in this survey were small to medium enterprises (SMEs), irrespective of whether they were publicly listed or private. Patent activity The next set of questions focused on patent activity of participant organizations, including numbers of granted patents and patent applications. Again, these data illustrate the small scale of R&D activity by participant organizations in this survey. The peak of patent activity was at one to three patent families, with the overwhelming majority of participants claiming less than 25 patents and patent applications. As would be expected, given the sectors of participant organizations in this survey, most tended to include patent claims in the areas of diagnostics, devices and therapies. There were also patent claims to more upstream inventions, including gene products, gene sequences and research assays. In-‐licensing In this part of the survey, participants were asked about their in-‐licensing practices and
19
experiences. Participants were first asked about the quantum of in-‐licensing. A high percentage of participants (44.4%) reported that they were not licensing-‐in at all. In the private biotechnology and research categories the majority of participants had no in-‐licenses. There were no obvious differences in the number of in-‐licenses between the diagnostic, medical device and drug discovery sectors. These results need to be teased out more fully. An organization might license-‐in for a variety of reasons, including obtaining rights to use and develop core technologies and obtaining rights to the research tools needed to practice their core technologies, both of which might also be associated with transfer of materials and know how. Other in-‐licenses may be entered into purely for the purpose of acquiring FTO with no transfer of any associated benefits. Intuitively, these FTO-‐type licenses are most likely to raise ‘undue burden’ concerns. But even where in-‐licensing carries some associated benefits, it could still create undue burdens for licensees if the costs of licensing outweigh the benefits, for example, if unrealistic royalty percentages are demanded. It is unlikely that research organizations would generally need to license-‐in their core technologies. Rather, these organizations will tend to be technology creators. In some circumstances, it may be necessary for research organizations to license-‐in the research tools needed to practice their core technologies. However, given what is already known about patent enforcement against research organizations, pure FTO licensing is likely to be far more rare. Bearing these factors in mind, it is not surprising that a low level of in-‐licensing is seen in the research category of participants in this study. But it is interesting to note that four out of the 11 research organizations do, in fact, license-‐in from time to time. There may also be some companies that create their core technologies in-‐house. However, it is more likely that most Australian medical biotechnology companies have acquired rather than created their core technologies. Previous research has shown that in the past many
20
biotechnology companies in Australia were spun out from research organizations and were either assigned or exclusively licensed their core technologies.39 The fact that nine of the 17 private biotechnology companies who answered the question on in-‐licensing reported that they had none suggests that assignment rather than licensing may continue to be a common mechanism for acquiring core technology. The reasons given by participants for not in-‐licensing or not in-‐licensing regularly are presented in Table 1. Table 1: What is the most common explanation for the fact that you are not licensing-‐ in/not regularly licensing-‐in? [Participants were asked to select one from the list of options.] Options No active policy Not aware of patents in field Able to invent around Activities within scope of research exemption Too expensive (royalty stacking) Patent holders tolerate infringement Relevant patents cleared by collaboration Other
Not licensing-‐in 3 (15%) 3 (15%) 5 (25%) 3 (15%) 0 0 2 (10%) 4 (20%)
Not licensing-‐in regularly 3 (13%) 0 4 (17.4%) 1 (4.3%) 1 (4.3%) 1 (4.3%) 0 2 (8.7%)
An additional option was presented to those participants who were not regularly in-‐licensing: that they were a small organization with only a few projects. This was by far the most common explanation for not regularly licensing-‐in, with 11 responses (47.8%), five of which were from the private biotechnology company category and five from the publicly listed biotechnology company category. Together, these data further illustrate that participants in this study appeared to be at an early stage of development. While some of them will have had to go through the process of acquiring their core technology by assignment or licensing, it is more unlikely that they would 39 On this point see Nicol and Nielsen, above n1, at 105-‐107
21
have been exposed to the types of patent enforcement actions by third parties that would require them to license in for FTO purposes. Comments made in association with selection of the ‘other’ option from the list shown in Figure 1 further illustrate this point. Most comments focused on the fact that the organization was at too early a stage of development to need to in-‐ license. Those participants who were engaged in licensing-‐in were asked to identify the types of in-‐ licenses they entered into and their frequency of use, in a matrix-‐style question. Responses are illustrated in Figure 1, which shows that participants in this study engaged in a wide variety of types of in-‐licensing. While participants were not asked to explain their reasons for in-‐licensing, it seems most logical that core technologies are licensed exclusively for all fields of use or for specific fields of use, but that the research tools needed to practice core technologies would be more likely to be licensed-‐in non-‐exclusively. Though this is not necessarily always the case, non-‐exclusive licensing of research tools is highly recommended in best practice guidelines.40 In-‐licensing for pure FTO purposes is also likely to be non-‐ exclusive on the basis that patentees are likely to want to be able to enforce their patents against multiple parties. The levels of exclusive licensing for all fields of use and exclusive licensing for specific fields of use illustrated in Figure 1 suggests that some participants in this study were in-‐licensing core technologies. The levels of non-‐exclusive licensing also suggest that there was some research tool or pure FTO licensing. However, the generally low level of in-‐licensing reported in this study indicates that participants were not encountering an overly
40 National Institutes of Health, US Department of Health and Human Services (2005). Best practices for the licensing of
genomic inventions: final notice. Federal Register 70:68,18413; Association of University Technology Managers (2007). In the Public Interest: Nine Points to Consider in Licensing University Technology. Available at: http://www.autm.net/AM/Template.cfm?Section=Nine_Points_to_Consider; Organization for Economic Co-‐operation and Development (2006). Guidelines for the Licensing of Genetic Inventions. Paris: OECD. Available at: http://www.oecd.org/dataoecd/39/38/36198812.pdf.
22
complex patent landscape and the time they participated in this study, and/or had not yet been exposed to enforcement actions by owners of relevant patents. Figure 1: In the area of medical biotechnology, does your organization use the following types of in-‐licenses? Please indicate the frequency of the use.
Out-‐licensing Participants were asked a similar set of questions with regard to their out-‐licensing policies, but here the focus was on the percentage of their patent portfolios that were licensed-‐out. Participants were first asked about the quantum of out-‐licensing, the results of which suggest that the majority of participant organizations are at too early a stage of development to be ready to license-‐out. Over 50% of participants reported no out-‐licensing, including 11 of the 21 private biotechnology companies and six of the 17 publicly listed biotechnology companies. However, there are clearly some participant organizations for whom licensing-‐out is a significant component of their business management strategy. For example, participants from five of the private biotechnology companies stated that more than 20% of their patent portfolio was out-‐licensed. It is interesting to note that overall rather less licensing-‐out of patent portfolios was reported in the publicly listed companies than private companies, which was not expected. It was expected that those organizations involved in drug discovery would tend to be more active in licensing-‐out than other sectors, because it is unlikely that they would be able to 23
undertake their own drug development and marketing. Diagnostics companies and medical device companies, on the other hand, may have some opportunity to develop and market their own products. However, this is not borne out by the data, which tend to suggest that there is a similar level of licensing-‐out of patent portfolios in drug discovery as in the other sectors. It must be acknowledged that these discrepancies in expectations and data are just as likely to have arisen as a result of individual participant characteristics rather than any generalizable trends within the industry as a whole. As with in-‐licensing, participants were asked to elaborate on their reasons for not licensing-‐ out, or not licensing-‐out regularly, the results of which are shown in Table 2. These data support the notion that for the majority of respondents, R&D is at the in-‐house stage and it is too early to expect much in the way of licensing-‐out to downstream users, or alternatively the technology is of a type that will be fully developed in-‐house. Some of the comments made in association with selection of the ‘other’ option emphasise this point: “not yet at this stage”; “just too early -‐ we will license out when we get our next trial results. …”; “patents only just being cleared and relationships beginning to be formed”; “we are still negotiating our first deal”; “R&D too early stage to license out”; “too early, currently seeking partners”. Table 2: What is the most common explanation for the fact that you are not licensing-‐ out/not regularly licensing-‐out? [Participants were asked to select one from the list of options.] Options No patents No active monitoring of infringements Patented inventions used for own R&D Research exemption applicable Patents invented around Tolerate infringement Relevant patents cleared by collaboration Other
Not licensing-‐out 3 (13%) 0 9 (39.1%) 0 0 0 1 (4.3%) 10 (43.5%)
Not licensing-‐out regularly 1 (16.7%) 0 0 0 0 1 (16.7%) 2 (33.3%) 2 (33.3%) 24
Those participants who were engaged in licensing-‐out were asked to identify the types of out-‐ licenses and their frequency of use in a matrix-‐style question, the results of which are displayed in Figure 2. As with in-‐licensing, these results show that a range of types of out-‐ licenses are utilised, suggesting that both core technologies and other research tools and platforms are licensed. Figure 2: In the area of medical biotechnology, does your organization use the following types of out-‐licenses? Please indicate the frequency of the use.
FREEDOM TO OPERATE This part of the survey was dedicated to analysing the issues of FTO, undue burdens and third party patent rights. It was initially intended that this part of the survey would serve two functions. First, these data were intended to add to the growing body of empirical evidence on the extent to which patents cause impediments to FTO, which collectively may have value in setting policy directions for the future. Secondly, it was anticipated that these data would have some interpretive value in analysing the reasons why organizations might or might not be interested in engaging with collaborative licensing. It was hypothesised that those individuals who perceive that patents impose an undue burden on their FTO may be more receptive to the idea of engaging in collaborative strategies than those who are untroubled by the patent burden. However, as suggested by Dr Janet Hope, there is not necessarily any relationship between perceptions of undue burden and willingness to explore alternative licensing
25
strategies. Rather, she hypothesises that those most interested in engaging in collaborative strategies are likely to be innovators rather than problem solvers and hence she predicts no correlation between undue burden and interest in engagement (Hope, pers. comm., 23 October 2009). This hypothesis tends to be supported by the data from this study, which show no obvious correlation between experience with undue burdens and engagement with or positive attitudes towards collaborative strategies. Perception of undue burden Three points are immediately apparent from the data on participant views towards the undue burden of third party patent rights. First, around 25% of participants in this survey (15 out of 59) perceived that there was an undue burden. This survey did not explore further the reasons for such perceptions. They may be illustrative of more general concerns across the medical biotechnology industry about the burdens created by third party patent rights. Or, on the other hand, they may have arisen for very specific reasons, particular to individual participants. For example, a participant may have encountered a single blocking patent, or a recalcitrant licensor, or an overly complex patent landscape in their particular research sector. It is difficult to make conclusions on the data available. The second point that emerges from the data is that participants in the publicly listed biotechnology company category in this survey have more concerns about undue burdens than do those in other categories (41.25% of participants in this category, compared with 19% of private company category participants and 9.1% of research category participants). The difference between publicly listed and private companies can, perhaps, simply be explained by the fact that listed companies have been in existence longer than private companies and hence are more likely to have been exposed to enforcement actions. The activities of private companies may be ‘under the radar’ of patent owners, but publicly listed companies inevitably have a more public face. In the alternative, the fact that more publicly
26
listed company participants perceive an undue burden may simply be explained as a coincidence, or it might relate to the type of research they are doing, or their attitudes toward infringement. The difference between publicly listed company participants and research category participants could be explained by the fact that research organizations continue to be shielded from enforcement actions by a so-‐called ‘practice-‐based research exemption’.41 Thirdly, participants in the diagnostics sector are more concerned about undue burdens than other sectors (38.5% compared with 21.4% for drug discovery and 27.4% for medical devices). This third point is not unexpected. As previously noted, much of the theoretical literature has focused attention on the adverse consequences of enforcement of upstream patent rights on this particular sector. Solutions to undue burdens The 15 participants who stated that they perceived an undue burden were asked how they responded to it. Answers to this question are reported in Table 3.The strategy of ignoring third party patent rights was only identified by three participants, which seems quite low, given the low rate of licensing-‐in reported in this survey. It is suggested that the data presented in this table may be slightly skewed, perhaps because of an unwillingness to make any sort of admission as to patent infringement. Alternatively, it may be the case that there is no conscious decision to ignore third party rights as such, but rather there is no perceived need to consider whether such rights exist at the present time. It is also perhaps surprising that negotiating licenses was the preferred strategy, bearing in mind the low rate of licensing-‐ in. On this point, it is noted that three of the participants with no in-‐licenses perceived that third party patent rights imposed an undue burden, and two of these identified negotiating licenses as a solution, which seems somewhat surprising. The fact that four participants 41 Nicol and Nielsen, above n1 at 219-‐222.
27
identified project abandonment as a strategy is of some concern. Some attrition is likely to be expected, even in an optimal system. However, project abandonment becomes a major concern if it occurs late in the R&D cycle.42 But if proper FTO analysis has been done, late-‐ term abandonment should not normally occur by reason of the undue burden of third party patent rights. Table 3: How does your organization deal with such an ‘undue burden’ to its ‘freedom to operate’? [Participants were able to select more than one from the list of options.] Options Negotiate licenses Invoke research exemption Invent around Compulsory licensing Start opposition/litigate Abandon Ignore Acquisition Other
Responses (15 respondents) 10 (66.7%) 1 (6.7%) 9 (60%) 1 (6.7%) 0 (0%) 4 (26.7%) 3 (20%) 1 (6.7%) 2 (13.3%)
Further questions were asked about the sectors where undue burdens were perceived, with participants being given the opportunity to list more than one option. Of the 15 responses, eight (53.3%) identified diagnostics as a sector where they perceived an undue burden. Six (40%) identified medical devices and five (33.3%) drug discovery. Pharmaceuticals (four, 26.7%), genetic testing (two, 13.4%) gene therapy and genomics (one each, 6.7%) were also identified as problematic. It is not surprising that diagnostics was identified as the sector of most concern, given that the diagnostics sector has long been thought to bear the highest burden from upstream patenting. KNOWLEDGE OF AND EXPERIENCE WITH COLLABORATIVE LICENSING STRATEGIES In this part of the survey, participants were asked similar sets of questions with regard to cross licensing, patent pooling and clearinghouses. Participants were first asked the simple 42
On the issues associated with project abandonment see generally Nicol and Nielsen, above n1 at 186-‐191.
28
question of whether they knew about the particular licensing strategy under discussion. Attention was then focused on their experience with the strategy. If they had no experience, they were asked the reason why. If they had experience they were asked to elaborate on the nature of the experience and their views on its efficacy on a five point scale from very useful through to very useless. As might be expected given the generally low level of patenting and licensing activity reported by participants in this study, there were only isolated experiences with any of the collaborative licensing strategies. Those participants who did have experience provide helpful case studies. The information given by participants with no experience provides more useful insights into their reasons for not engaging in such strategies and their views as to the longer term potential for those strategies to provide assistance in achieving FTO. Although each collaborative licensing strategy was dealt with in turn in the survey, the results with regard to knowledge and experience for each of the strategies have been compiled in Table 4 to make it easier to compare and contrast responses to the three strategies. Table 4: Have you been informed about cross licenses/patent pools/clearinghouses as an alternative licensing model? Has your organization been involved with cross licenses/patent pools/clearinghouses?
Cross licensing Patent pools Clearinghouses
Knowledge Yes
No
32 59.3% 17 34% 12 26.7%
22 40.7% 33 66% 33 73.3%
Experience Skip 5 9 14
Yes
No
4 12.5% 3 17.6% 2 16.7%
27 84.4% 14 82.4% 9 75%
Don’t know 1 3.1% 0 1 8.4%
29
The data in Table 4 illustrate that the highest level of knowledge about collaborative licensing rests with cross licensing, followed by patent pooling and then clearinghouse mechanisms. Greater familiarity with cross licensing was expected, given that a simple cross licensing arrangement between two parties is likely to be encountered much more frequently than the more complex patent pool and clearinghouse strategies. Experience with the three collaborative mechanisms was uniformly low, which was also expected, given the general low levels of licensing-‐in and licensing-‐out reported above. It is unlikely that there is any perceived need for the majority of the participants in this study to engage in such mechanisms at the present time. Private biotechnology companies, in particular, are probably the least likely to be ready to embark on innovative strategies, either with regard to licensing-‐in or with regard to licensing-‐out. It is interesting to note, however, that it is the research sector, which seems to be most engaged with each of these collaborative strategies. The study participants who identified their organizations as having involvement in one or more of the collaborative licensing strategies belonged to the following categories: 1. a publicly listed biotechnology company, operating in drug discovery, diagnostics and medical devices sectors: patent pooling and clearinghouse; 2. a publicly listed biotechnology company, operating in drug discovery and vaccines sectors: cross licensing; 3. a private biotechnology company, operating in drug discovery, pharmaceuticals, diagnostics and medical devices sectors: cross licensing; 4. a public research institute, operating in drug discovery, pharmaceuticals, vaccines, gene therapy and diagnostics sectors: cross licensing; 5. a public research institute, operating across multiple sectors: patent pooling;
30
6. a university, operating in drug discovery, pharmaceuticals, vaccines, diagnostics and medical devices sectors: cross licensing and clearinghouses; and 7. a private research institute, operating across multiple sectors: patent pooling. Although the participants who engaged in these types of licensing tended to cut across multiple sectors in terms of their general activities, the collaborative licensing activity itself tended to relate mostly to drug discovery, pharmaceuticals and medical devices rather than other sectors. Further details on experience are provided below for each licensing strategy. Experience with cross licensing Of the four participants involved in cross licensing, two said their experience was positive (#1 and #6) and two gave mixed responses (#3 and #5). Participants were asked to explain their views from a list of options. The key message gleaned from these data is that those individuals with experience of cross licensing seem to believe that it has value in securing FTO. Experience with patent pooling The three patent poolers identified themselves as licensee, licensor, and licensor/licensee. The sectors in which they undertook patent pooling were identified as drug discovery (#1 as licensee) and pharmaceuticals (#5 as licensor and #7 as licensor/licensee). Views were decidedly mixed on experiences with patent pooling, with one positive response (#1), one negative (#5) and one mixed (#7). Reduction of the risk of refusals to license seems to be the most obvious reason for entering into a patent pool, but other considerations, including FTO and positive cost-‐benefit are also relevant. However, complexity, loss of control and time consuming negotiations seem to be major stumbling blocks. Experience with clearinghouses Services used by the participants involved with clearinghouses included provision of information on patents, matching parties, negotiating licenses and collecting and distributing
31
royalties. The experience was rated as positive for both participants for a range of reasons. The simple message here is that those who participated in clearinghouses had a positive experience for a variety of reasons. Reasons for lack of experience Those participants who had knowledge of but no experience with the three collaborative licensing strategies were asked to explain the reasons for their lack of experience. Matrix-‐type questions were presented, asking participants to identify whether a particular reason was very important through to very unimportant, on a five-‐point scale. Seven trends have been isolated from the responses of individuals who had knowledge of collaborative licensing strategies, but no experience with them. 1. For many participants, simple lack of opportunity and perceived lack of need are the dominant reasons for lack of involvement in any of the collaborative strategies. 2. Unease about relinquishing control of patenting and licensing are clear concerns with regard to engagement in any collaborative strategy. Clearinghouse mechanisms, in particular, are of concern in this regard. 3. Loss of exclusivity is a major consideration in relation to all licensing strategies. 4. Time, expense and complexity are relevant considerations. For cross licensing, time spent in negotiations and differences in bargaining position raise concerns. For patent pooling, complexity and time are clearly the dominant concerns. 5. Uncertainty of value in achieving the goal of FTO is clearly a relevant consideration for many participants, particularly with regard to the patent pool and clearinghouse models. 6. There is also concern that the patent pool and clearinghouse models have not yet been fully evaluated. 7. Obligations with regard to compliance with competition law requirements do not seem to 32
be a major concern to most participants. More specifically, dominant concerns relating to cross licensing included lack of opportunity and unequal bargaining power, with loss of secrecy, lack of need and time factors also being important. For patent pooling, complexity and loss of exclusivity are most commonly raised as particular concerns, with time consuming negotiations, loss of control, lack of utility for FTO and lack of need also being important. For clearinghouses, loss of control and loss of exclusivity seem to be generally most important, followed by lack of utility for FTO, negative cost-‐benefit ratio and lack of full evaluation of the model. ATTITUDES TOWARDS COLLABORATIVE LICENSING STRATEGIES The final major component of the survey asked participants to evaluate the usefulness of the three collaborative licensing strategies for their organizations. In answering these questions, participants were asked to take into account the market characteristics and the profile of the organizations involved in the area of medical biotechnology. Those with experience were asked, from their own perspectives, to rate the utility, or lack thereof, of each model for their organization’s FTO. Those without experience were asked to undertake the same exercise from their own perspectives and based on the definitions provided earlier in the survey instrument. The data are compiled for participants with and without experience for each of the three collaborative strategies in Table 5. Not unexpectedly, those participants who already had experience with collaborative licensing and who reported positively on their experiences also tended to have positive attitudes towards these strategies, whereas those with mixed or negative experiences tended to be more equivocal in their attitudes. The views of participants without prior experience with collaborative licensing were very mixed. Very few were at the extreme ends of the spectrum, with ratings of very useful or very
33
useless. There was no clear preference in the group of participants as a whole for any particular licensing strategy. Cross licensing seems to be somewhat more favoured. But still, nine participants (17.3%) rated this strategy as usually useless. More participants considered patent pooling to be a more useless strategy than clearinghouses or cross licenses, and considerably more considered cross licenses and clearinghouses to be useful compared with patent pools. It appears that there was a higher level of clarity about attitudes towards cross licensing (with only six don’t knows) than patent pooling (with 10 don’t knows) and particularly clearinghouses (with 12 don’t knows). This is possibly reflective of the levels of knowledge of each of these strategies. For cross licensing, the distribution of views was fairly constant across categories. Conversely, participants in the publicly listed biotechnology company category tended to show more negative views towards patent pooling and more positive views towards clearinghouses than other categories, whereas private biotechnology company participants generally tended to have more evenly distributed views for each of the strategies. Perhaps, surprisingly clearinghouses seemed to be least well favoured in the research category. The distribution of views was also fairly constant across sectors for cross licensing, although there was a slightly higher level of ambivalence in the diagnostic sector, both in terms of neutral ratings and in terms of lack of opinion. Patent pooling was more strongly favoured in drug discovery than in other sectors. Clearinghouses tended to be quite well favoured in the diagnostics and medical devices sectors.
34
Table 15: From your perspective [and – for those without experience – in the light of the foregoing definition] would cross licensing/patent pools/clearinghouses be useful/useless for your organization to gain ‘freedom to operate’ in the area of medical biotechnology?
Cross licensing Patent pools Clearinghouses
Always useful
Usually useful
2
18
3.9%
Neutral
Usually useless 9
Always useless
Don’t know 6
34.6%
17 32.7%
17.3%
10
13
14
1
20.8%
27.1%
29.2%
2.1%
10 20.8%
1
13
7
2
12
2.2%
28.3%
10 21.7%
15.2%
4.3%
26.1%
0
0
11.5%
Skip 7 11 13
Participants were then asked to explain why they gave particular responses in the following formats: • neutral – open format; • always or usually useful – open format; • always or usually useless – closed format, with the opportunity for open-‐ended comment. Cross licensing In this area, 13 of the participants who rated the utility of cross licensing for FTO as ‘neutral’ responded to the open ended question asking them why they held that view and 13 of the ‘useful’ group of participants also provided open ended responses. Nine participants provided responses in the ‘useless’ category. ‘Neutral’ responses Five participants stated that their lack of involvement to date made it difficult for them to assess the value of cross licensing for the purposes of FTO. Four participants were of the view that the value of cross licensing was situation and/or organization specific. One participant
35
from a publicly listed biotechnology company in the medical device sector was unsure about how cross licensing would work in practice: Unsure how it would work if one party perceived it had a superior patent that only a small part related to the other parties patent. I would be reluctant to agree to provide another party a cross license to my patent if it was to overcome an issue of a broad claim of the other parties patent that was creating the issue, and that their invention as such was not of any use to me.
‘Useful’ responses A group of three participants focused on the inevitable need for cross licensing across various sectors because of the existence of other patent rights. For example, one participant from a private company saw cross licensing as being usually useful in drug discovery and pharmaceuticals for the following reason: Some patents are taken out early in the discovery process and at a time when more than one organisation is heading towards the same goal. Consequently each organisation may independently file claims that prevent the other from operating. To resolve this situation consumes vast amounts of time and money that would be better spent on continuing development and/or commercialisation.
Some saw specific benefit for their organization in cross licensing. For example, one participant from a cross sector private biotechnology company said that: “It could allow us to gain access to a technology that may advance our R&D”. Others focused on mutual benefit, for example: “Both parties have strong and separate IP that together can potentially form a useful and powerful product” (research category, drug discovery sector participant). Another participant in a cross sector, publicly listed biotechnology company said cross licensing “could be useful for everything, depends on specifics”. Six participants saw the utility of cross licensing as being limited to particular situations and/or technologies. For example, a participant from a publicly listed company saw cross licensing as being usually useful in drug discovery and diagnostics because:
36
In drug discovery there are research tools that we have that may be useful for others and vice versa. In diagnostics, particularly molecular diagnostics, there is often ownership on DNA gene sequences (primers probes). Cross licensing may be useful in these cases.
However, this individual also cautioned that: “Even though it seems like a good model it may be difficult to have projects of ‘equal value’ where a cross license could be usefully negotiated.” ‘Useless’ responses Participants in the ‘useless’ category were primarily concerned with the lack of perceived need for cross licensing, except for one, who stated that: “business environment too competitive and litigious for most parties to give cross licensing significant consideration.” This is an interesting response, given that cross licensing is often used as a means of settling or avoiding litigation. Patent pooling In this area, eight of the participants who rated the utility of cross licensing for FTO as ‘neutral’ responded to the open ended question asking them why they held that view and five of the ‘useful’ group of participants also provided open ended responses. Thirteen participants provided responses in the ‘useless’ category. ‘Neutral’ responses Four participants in this category expressed the common view that there was no need for this strategy. The following comment from a publicly listed biotechnology company participant is typical: “As before, it appears to be a useful concept. However, it would not have been necessary so far. We have not any real issues with FTO so far.” Others commented that the value of patent pools depends on the circumstances, for example, a private company participant stated that the value: “Depends on what is in the pool and whether it offers complete freedom to operate or just part ie other licenses still required because they are not 37
in the pool”. For one participant from a private company, patent pooling is simply too hard: In principle the idea could be a good one but in practice it is difficult enough to negotiate a bi-‐lateral agreement, cross licensing is harder and the patent pool looks as though it would consume so much time to negotiate with multiple parties that I'd be tempted to forget about it and look for something “easier”.
‘Useful’ responses Comments in this category of responses tended to focus on the increased efficiency of patent pools over bilateral and cross licensing and the decreased burden associated with licensing and royalty stacking. These points are illustrated by the following responses from the participants from publicly listed company participant: Research tools in general are needed in these areas and it is easier and more cost effective if the necessary patents can be licensed from a patent pool rather than having to negotiate with several companies. Likewise, for licensing out, it takes some of the burden off you.
And private company participant: Because there are many pre-‐existing rights that more than one cross license is required, hence making a pool to be more efficient -‐which may also reduce likelihood of later royalty stacking.
‘Useless’ responses Eight participants identified complexity as their overriding concern. Other concerns included lack of need, expense, time consuming nature, concerns about the inclusion of all relevant patent holders, loss of exclusivity and resistance to sharing. Clearinghouses In this area, seven of the ‘neutral’ participants responded to the open ended question asking them why they held that view, and seven of the ‘useful’ participants also explained their views. Nine participants provided responses in the ‘useless’ category.
38
‘Neutral’ responses As with patent pooling, lack of perceived need and uncertainty as to advantages were clearly major considerations. As one participant explained: “Depends on what is in the portfolio and what terms are available -‐ may be commercially more expensive than dealing directly with patent owner.” An interesting comment was made by a device sector participant in the research category. I can see the potential benefits of this mode of operation, and that clearinghouses may be viewed as being less biased. Also, when seeking to operate across a number of patent fields it may be a useful service. In our particular field, I see patents being used as barriers to entry, to gain competitive advantage.
‘Useful’ responses The comments made by this group of participants illustrate the potential benefits for small firms, as highlighted by the following response: A clearinghouse should be in a position to have a broader overview than a (small) individual firm can hope to have. Also the clearinghouse could help to reduce the amount of negotiation between a potential licensee and multiple licensors.
Other comments from the company participants illustrate the particular utility of clearinghouses for them. • It is sometimes difficult to locate partners to develop a product (publicly listed, medical device). • A method for medical device manufacturers to be informed of inventions/patents in that arena and for inventors of medical devices to be brought to the attention of medical device manufacturers (publicly listed, medical device). • Useful if they can provide a clear way forward through the maze if at a reasonable cost (private, diagnostic). • Our core expertise is 'reduction to practise' of concepts/ideas. We lack capabilities to 'commercialise' our technologies (consultant, cross sector).
39
‘Useless’ responses Lack of need and concern about the inclusion of all relevant patent holders and the most valuable key technologies were dominant concerns for this group of participants. Complexity, time consuming nature and expense were also relevant considerations. DISCUSSION The Nicol-‐Nielsen study undertaken in 2002-‐2003 found that many medical biotechnology companies in Australia were small organizations whose business plans were built around creating or licensing-‐in core technologies, value-‐adding and on-‐licensing to larger players, often in overseas jurisdictions.43 The key message to emerge from that study was that while there were challenges in respect of in-‐licensing and out-‐licensing of patents in this emerging Australian industry, practical means were being found to work around many of these challenges. From the perspective of downstream users of technology, it was possible to negotiate license deals for core technologies, blocking patents could be worked around and the patent landscape was not so cluttered that project abandonment was inevitable.44 But none of this was easy in 2003, nor is it now, and it is likely to get more difficult as the patent landscape gets more complex, particularly if participants become more determined to stake their claims and protect their territory. From the perspective of upstream creators and developers of technology, including both research organizations and companies, the Nicol-‐Nielsen study found that searching for potential licensing partners was a time consuming process. Despite this, it was generally possible to identify and engage with potential partners, particularly for highly innovative 43 Nicol and Nielsen, above n1 at 93-‐123. 44 Nicol and Nielsen, above n1 at 137-‐195.
40
technologies. However, license negotiations and valuations were often contentious and challenging, and unequal bargaining power was at times more of an issue for licensors than for licensees.45 It is likely that out-‐licensing will continue to pose these types of significant challenges for creators and developers of technology. The present study has revealed that participants in the Australian medical biotechnology industry (at least those who participated in this online survey) continue to be generally small players, in the sense of the size of their involvement in medical biotechnology R&D. They tend to have fairly small research teams, modest investment in R&D and small numbers of patents and patent applications. Even so, many are involved in multiple sectors across the medical biotechnology industry. Given the finding in the Nicol-‐Nielsen study that many Australian companies and research organizations create and add value but tend not to engage in product development, ultimately these industry participants are reliant on licensing-‐out or entering into other forms of collaborations with downstream partners. Despite this, a low level of licensing-‐out was reported for many participants in the present study, with over 50% having no out-‐licenses at all. It is particularly interesting to note that in the private biotechnology company category almost 65% of participants reported no licensing-‐out. Clearly, these participants have some way to go before they are able to unlock a successful future. The comments made in response to questions around the topic of licensing-‐out illustrate the point that although this may already have been part of their organization’s business plan, they were not yet at the stage where it was within their contemplation. With this in mind, it is perhaps timely for them to be considering the use of alternative licensing strategies rather than solely committing to the traditional exclusive rights approach.
45 Nicol and Nielsen, above n1 at 100-‐123.
41
The quantum of in-‐licensing reported in this study was also uniformly low, with over 50% of participants having between one and 10 in-‐licenses and 44.4% having no in-‐licenses at all. As noted in the results section, licensing-‐in may be for a range of purposes including acquisition of rights over of core technology and acquisition of rights to use research tools both of which may be packaged with materials and uncodified information, as well as more ‘pure’ FTO purposes. Bearing in mind these experiences with regard to licensing, it is hardly surprising that 75% of participants in this study did not identify an undue burden resulting from the number of third party patent rights in the area of medical biotechnology. But the fact remains that some participants in the industry do identify such burden. And many other participants are simply not yet at a stage where they may be expected to encounter such burdens. It is inevitable in any industry where patenting is a recognised business strategy that third party patent rights will create some burden on FTO. This is particularly likely to be the case in an area of cumulative innovation like medical biotechnology.46 This survey did not explore the issue of when participants in the medical biotechnology industry might perceive that a burden has become ‘undue’. What may be an undue burden for one individual may be a normal cost of doing business for another. The fact that the majority of participants who identified undue burdens stated that they negotiated licenses and/or invented around to deal with those burdens suggests that they did not create insuperable blocking effects. Although project abandonment was identified as a strategy used by four participants to deal with burdens, this does not provide compelling evidence of the types of adverse outcomes predicted in some of the theoretical literature discussed in the introduction to this paper. Bearing in mind the challenges faced by creators and users of medical biotechnologies, what, 46 See generally Scotchmer S (2004). Innovation and Incentives. Cambridge, US: Massachusetts Institute of
Technology, at 127-‐159.
42
then, of alternative dissemination strategies? This study has shown that there is some knowledge of cross licensing, patent pools and clearinghouse mechanisms across all industry categories and sectors, with rather more knowledge of cross licensing than the other two strategies. Publicly listed biotechnology company participants and drug discovery sector participants tend to have highest levels of knowledge, except for clearinghouses, which tend to be better known in the research category. Given that close to 70% of participants have no knowledge of patent pools and over 70% of participants have no knowledge of clearinghouses, there may be some merit in facilitating broader dissemination of information on these strategies in the academic literature, at policy forums, at industry conferences and in the popular media. Given the emerging status of many participant organizations in this survey, it is hardly surprising that few of them were at the stage where they had actively engaged in strategies such as cross licensing, patent pooling and clearinghouses. Consequently, this study provides limited information on experiences with these collaborative licensing models. Participants from a total of seven organizations identified their organization as participating in one or more forms of collaborative licensing. Four had experience with cross licensing, three with patent pools and two with clearinghouses. Although there are limitations with the size of the data set, participants in this study tended to report more of a positive experience (five out of eight response) than a mixed experience (three responses) or a negative experience (one response) from their involvement with these collaborative licensing strategies. This study is of greater importance for the information provided by many participants about the reasons why they had not engaged in the three collaborative licensing strategies, and the attitudes of participants towards engaging in these strategies in the future. The attitudinal data illustrate that a number of participants were very receptive to the idea of looking further into the applicability of some of these collaborative strategies for their organizations, if not
43
now, then in the future when the need arises. But others saw that there was no clear need or opportunity to engage in such strategies at the time this survey was undertaken. There was broad recognition by many participants that there are real challenges in securing FTO and that entering into licensing negotiations with other parties is inevitable. As one participant put it, “no one piece of intellectual property is an island”. Still, many participants did not see the need to engage in collaborative licensing now or in the future, and had ongoing concerns about the idea of relinquishing control and exclusivity in such a competitive environment. Participants seemed to recognise the potential value of cross licensing for their organizations, and that this could be a mutually beneficial strategy for both parties in licensing negotiations. However, the deal-‐ and organization-‐specific nature of licensing in this field was also highlighted. A number of participants also recognised the potential for use of patent pooling. However, much more caution was expressed than for cross licensing. For some, patent pools were seen as good in principle but difficult to implement in practice. There was some difficulty in seeing how patent pools would come together and whether they could provide complete FTO. There was even more uncertainty as to how clearinghouse mechanisms would work in practice and how they would provide sufficient benefits to justify handing over control. Getting the right participants and key technologies into the clearinghouse are obvious concerns. Nevertheless, there was willingness on the part of some participants to consider their use and to find out more about how they might operate. Control and the need to retain exclusivity remain dominant concerns, which is exactly what would be expected in the exclusive rights business model. In the present financial environment it is possible that firms will take an even more inward-‐focused approach to technology management rather than looking outwards to embrace more collaborative approaches to doing business. Economic modelling, awareness raising and analysis of regulatory hurdles are all necessary prerequisites before the efficacy of collaborative licensing can be fully evaluated. Although
44
there is no clear evidence from the present study that collaborative strategies are likely to be more necessary and/or more welcome any particular medical biotechnology sector, there is some indication that the drug discovery and pharmaceuticals sectors are most amenable to the use of such strategies. In the alternative, existing literature and some of the trends reported in this study suggest that the diagnostics sector may provide an ideal environment for a pilot study exploring the role of collaborative licensing strategies in enhancing innovation. In the so-‐called age of personalized genomics, patenting and licensing challenges for this sector, in particular, are destined to increase. The survey reported in this paper was specific to the Australian medical biotechnology industry. Essentially the same survey was administered at around the same time in Europe, but detailed comparisons have not yet been undertaken. To the best of the author’s knowledge, comparative data do not yet exist in the US. It would be interesting to see if there are marked differences in knowledge of, experience with and attitudes towards collaborative licensing for US industry participants when compared with the Australian data, given the differences in maturity of the industries between these jurisdictions.
45
