Patent licensees gain more power

I touched briefly on the Medimmune v. Genentech case in a previous Carnival of Biotechnology, but I didn’t go into great detail on the case because I didn’t want to scoop David Morrill who interviewed me for an article on the case.

You can read my thoughts in David’s article, but I’ll go ahead and repeat them here.

In order to challenge a patent, the challenger must either be in litigation with the patenter, or be able to demonstrate that they are likely to be sued for infringement. This restriction is presumably in place to prevent deep-pocketed bullies or uninvolved firms from racking up legal expenses for innovators. Under this system, licensing a patent therefore grants benefits to both parties. The licensee is assured that they won’t be sued for infringment, and the licensor is assured that the licensee won’t infringe and/or challenge their patent. The case of Medimmune v. Genentech has redefined the balance of power in patent licensing.

In this case, Medimmune was licensing a patent from Genentech. In 2001 Genentech claimed that a new Medimmune product, Synagis, was covered by the patent and demanded additional royalty payments. Interpreting this demand as a threat of litigation, Medimmune proceeded to pay royalyies into an escrow account ‘in protest’ and challenged the validity of Genentech’s patent – effectively licensing a patent while challenging it. The Supreme Court validated Medimmune’s actions, effectively making it possible for a company to abide by license terms in escrow (thereby avoiding a potential trebling of damages if they were found to be willfully infringing a patent) while challenging a patent.

The effect of this ruling is that patent licensors have more power because, while licenses still protect them from being challenged for infringement, they do not prevent them from challenging patents upon which licenses are based.

Xenotourism: Scary Stuff

Just came across an article on diabetics going to Mexico to receive pig xenotransplants. Unlike other forms of medical tourism, where patients travel to other countries for lower cost treatments, better quality treatments, or to receive ethically questionable organ transplants, xenotransplantation carries significant safety concerns.

Xenotransplantation is the transplantation of organs or tissues from non-humans (such as pigs) into humans. The potential to introduce new diseases which can spread among the general population – like AIDS – is a real threat, and needs to be evaluated and controlled if xenotransplantation is going to be a viable therapy. The case of xenotransplantation is an example of the need for progressive regulation. The inability to prevent individuals from travelling abroad to receive treatment creates an impetus to increase research into xenotransplantation to determine its safety and, if possible, develop guidelines for implementation in order to stem unregulated treatments.

Source article: Xenotourism and Xenotravel: Some notes on global regulation

VCs filling biotech funding gap

If there’s one sure rule about private equity, it is that there are no rules about private equity! Venture capitalists will tell you that they have different investment philosophies than everyone else, they’ll tell you that they’re not venture capitalists, they’ll tell you that they focus on areas that everyone else ignores.

So, it should come as no surprise that mere days after I posted an article on angels filling the biotechnology funding gap, Business Week should put out an article touting VCs are ‘Biotech’s Unlikely New Pal‘. Truth be told, the investments described in this article aren’t anything new. They’re hybrid business models that combine modest revenue streams with long-term R&D plays.

These hybrid models have been seen before, and were generally abandoned by investors with deep pockets in favor of more mature companies with demonstrated prospects of delivering large returns.

While these hybrid models sound like an intelligent combination of cashflow-positive business units with high potential R&D endeavors, there are some serious drawbacks. Firstly, companies can ‘shift from one foot to the other’, alternately selling the praises of their cashflow business or R&D efforts to distract investors from the fact that neither option actually has any long-term potential. This was clearly demonstrated by firms simultaneously genome databases and internal drug delivery programs in the genome craze of the late 90s. Secondly, the burdens of running a cashflow-positive business can distract management and operations from the company’s real mission – to develop innovative new products leading to significant growth.