DISSENTING REPORT BY SENATOR THE HON BILL HEFFERNAN, SENATOR RACHEL SIEWERT AND SENATOR NICK XENOPHON

EXECUTIVE SUMMARY

The Australian patent system has been in operation since 1903.

In 1990 the current Patents Act came into operation. It was the result of an extensive process of consultation, commenced in 1979 by the then Minister Productivity, the Hon. Ian Macphee. In 1984 the Industrial Property Advisory Council handed its report to the then Minister for Science and Technology, the Hon. Barry Jones MP. The IPAC Report was then reviewed and examined by stakeholders. In 1989 the Patents Bill was introduced into Parliament.

However, during the ten years of consultation no economic study assessed whether and how the Australian patent system maximises the social benefits and minimises the social costs to Australians; yet this is the principal objective.

With Australia joining the World Trade Organization in 1995, amendments were made to comply with the Agreement on Trade Related Aspects of Intellectual Property (TRIPS). Again after the signing of the Australia and United States Free Trade Agreement (AUSFTA), the Act was further amended. And yet again, no economic study was conducted into how these changes to Australia’s patent system would impact on Australians.

Amid claims that Australia’s patent system is important to fostering Australian innovation, the available anecdotal and statistical evidence seriously undermines these claims. Not only does Australia grant around 90% of patents to foreigners, but the percentage of resident-inventors of granted patents places Australia between Brazil and Israel. More recently IP Australia has admitted that Australia’s patentability standards are too low compared with its major trading partners. So they were in 1990 when Mr Jones promised the Australian Parliament that the new Patents Act would make Australia a more innovative country. But the evidence shows that since 1990 Australian innovation, at least as measured by the number of granted patents, has not improved. According to IP Australia the consequences of an imbalance in the system is a reduction in “access to follow-on innovation for Australian innovators and the advantages that flow to Australian consumers from access to information about new technology and competition in the Australia marketplace.”

And the grant of patents over biological materials which are identical or substantially identical to those existing in nature only contributes further to the imbalance and makes the consequences which IP Australia refers to only more severe. The grant of a patent according to TRIPS must be for an invention, yet many thousands of patents have been granted, mainly to foreigners, over things that no one invented. Human genes carrying identical genetic information to that contained in the human genome have been patented on the pretext of being isolated from the human body. Human proteins have likewise been patented. The result has been to impose burdens and restraints on those that are striving to find new diagnostics, medicines, treatments and cures for human illness and disease. Rather than contributing to Australia’s capacity to innovate these patents have retarded that capacity.

This Bill provides the Australian Parliament with a unique opportunity to address a very serious issue by recalibrating Australia’s patent system in one specific respect. And while the Bill does not address all of the issues that must be addressed if the Australian patent system is to continue to be relevant in the 21^st century, the passage of this Bill will make a significant contribution to the betterment of the Australian people by ensuring through legislation that things which no one invented cannot be monopolised and commoditised.

As the U.S. Supreme Court has said time and again, natural phenomena are not patentable subject matter, not because their discovery is obvious or does not involve risk and ingenuity but because they “manifestations of ... nature, free to all men and reserved exclusively to none”.

That IP Australia has, through an errant policy, permitted the patenting of natural phenomena in violation of this basic principle of patent law requires legislative intervention. This Bill sets out that legislative intervention.

INTRODUCTION

1.1        On 29 August 1984 the Industrial Property Advisory Committee (IPAC), the predecessor to the Advisory Committee on Intellectual Property (ACIP), provided its report to the then Minister for Science and Technology, the Hon. Barry Jones MP. The IPAC report was the end result of a five year review of Australia’s patent system and the operating legislation, the Patents Act, 1952. The report was not unanimous. The dissenter, Prof. Donald Lamberton, an economist from the University of Queensland, wrote:

This Report does not live up to its claim to have adopted an economic perspective and to have applied economic criteria. It has not consistently applied economic criteria; it has not made full use of available empirical evidence; and the concept of social cost, so frequently mentioned, has never really been fully grasped. The underlying idea of the process of innovation is little more than faith that more patent protection will ensure more innovation. The sensible objective is rightly declared to be “to modify the Australian patent laws, adjusting the length, strength and breadth of patent rights” to maximize the net benefit. It is unfortunate that the Report soon strays from this path.

No amount of talk about individual patent successes nor about a future in which the Australian economy has magically become progressive, innovation-oriented, and competitive on the world scene, can hide the facts that Australia exports little in the way of manufactured goods and has few inventions for sale. Mast patents are granted to overseas firms. To make the most of this situation, Australia needs to reduce social costs to the extent possible without inhibiting innovation and without provoking international retaliation. As a small nation, there is scope for such action. The constraints of the Convention are largely myth.

1.2         Other than the fact that today Australia manufactures less than it did in 1984, we understand on the basis of the evidence provided to this Committee that Prof Lamberton’s comments are as relevant today as they were then. According to IP Australia’s own statistics Australian innovation, as measured by the number of Australian patents applied by and granted to Australian residents, has not improved in 30 years. Patent statistics provided by the World Intellectual Property Office (WIPO) are corroborative. The percentage of Australian patents granted to non-Australian residents in 2008 was 89.3%. By way of contrast the same figure for Japan was 15.6%; Germany, 21.1%; Korean Republic, 25.5%; China, 32.9%, Russian Federation, 33.8% and the U.S., 49.2%. WIPO also confirms that today the only two countries that come anywhere near the U.S., the E.U. and Japan, the three dominant patent filing countries or regions in 1985, are China and the Korean Republic. What these statistics demonstrate is that if the number of foreign owned Australian patents are removed from the total number of patents granted by IP Australia, this country lags between Brazil and Israel. Only Thailand, Singapore, Mexico and Hong Kong have even lower resident-inventors.

Source: WIPO, World Intellectual Property Indicators, 2010.

1.3       To put Australia’s biotechnology industry into a global perspective it needs to be understood that the three dominant countries are the United States with 40.6% (of all biotech patents); E.U., 25.1% and Japan, 17%. These three countries alone produced 82.6% of all biotechnology patents in 2005. The remaining 17.4% is produced by 150 countries (WTO membership is 153 countries) and of that figure, 2.7% is attributable to Brazil, India and China. Australia is, therefore, a most insignificant player in this market.

Source: OECD Compendium of Patent Statistics, 2008

1.4       According to the Productivity Commission’s 2007 report, Public Support for Science and Innovation, venture capital plays an important role in providing funding to expansion phase businesses but not to start-up and early stage businesses in Australia. The Productivity Commission’s Report stated:

Venture capital brings with it not only access to finance but management expertise and contacts as well. Firms can also benefit from being able to tap into the established network of relationships that venture capitalists have built up over time.  In these ways, venture capitalists may significantly improve the probability that start-up and early stage firms succeed in commercialising their IP.

However, the enormous size of the venture capital markets in the U.S., the E.U. and Japan, when compared to that of Australia, even if Australia’s venture capital market is expanding, helps only partially to explain why Australia lags significantly behind these countries in the biotechnology sector. The Productivity Commission was advised in submissions of other factors impeding funding of start-ups and early stage businesses, such as:

(a) “Australian private equity market tend to be skewed towards later stage development” as opposed to start-ups (which disadvantages “commercial opportunities in academia” because venture capital consortia “necessarily take a very short term approach to liquidity and therefore identify only late stage projects”) and early stage firms;

(b) “... limited access to venture capital seriously constrains the ability of start-ups and early firms to commercialise knowledge and technology;

(c) “seeking to license their knowledge and technology relatively early (which can mean that the value of the IP is heavily discounted)”; and

(d) “adopting a cautious approach to patenting because of the difficulty of covering the cost of protecting their IP.”

1.5       The Productivity Commission summed up as follows:

A well functioning and self-sustaining venture capital market potentially provides a relatively efficient mechanism for identifying, screening and funding the most promising early stage commercialisation ventures. However, the general consensus appears to be that Australia still has some way to go in achieving this goal. The most significant impediments to the development of the venture capital sector in Australia are considered to be the scale of the existing venture capital industry, the relatively small pool of investment managers and the lack of a strong track record in delivering the kind of returns needed to attract major institutional investors to this high risk market.

1.6       The Productivity Commission’s report, however, did not adequately explain how Biota, an Australian biopharma company that was spun-out of the C.S.I.R.O.’s development of the anti-flu vaccine (zanamivir) or Relenza as it is better known, failed to maximise the value of the product after licensing it to GlaxoSmithKline in 1990. According to Mr. Peter Cook, Biota’s CEO and managing director, “the worry for small biotech companies is that Big Pharma will acquire a product and then ‘park it’.” In 2004 Biota sued GlaxoSmithKline in the Victorian Supreme Court seeking $700 million in damages for allegedly not adequately promoting the medicines. The law suit was settled in 2008 for $20 million.

1.7       Despite Prof. Lamberton’s dissent, the then Minister relied on the IPAC report in drafting, what was to become, the Patents Act, 1990. Nonetheless, in light of Prof. Lamberton’s concerns an important question which needs to be answered, in our opinion, is: has Australia’s patent system produced a net economic and social benefit to Australia in the past 30 years? On the basis of statements like: “the patent system ... promotes innovation through encouraging the diffusion of knowledge” contained in the majority report, it would seem that the majority believe that it has. But we are not convinced. Where is the data to support this statement? Certainly, none was provided to this Committee by those that subscribed to it.

1.8       During the second reading of the Patents Bill, 1989 on 1 June 1989, the then Minister told the Parliament that it was a “complete redraft of the Patents Act 1952, which it repeals and replaces.” He also explained that starting in 1979, when the then Minister for Productivity, the Hon. Ian Macphee announced the IPAC review of the Australian patent system, that Mr. Macphee had been “faced ... with criticisms of that complex legal and economic policy instrument which is the Patents Act.”

1.9       According to Mr. Jones, one of the major reforms ushered in by the Patents Bill, 1989 was its “language and structure”, which he said was “down to earth, so that mere mortals without law degrees have some chance of understanding what it is all about, at least in general terms.”

1.10    Mr. Jones also acknowledged that the IPAC report did not “wholeheartedly embrace the patent system”. And while the Australian government eventually made the decision to retain the patent system, Mr. Jones said that it was not be treated as “some kind of mysterious sacrament which has to be observed if we are to proceed along the path to economic heaven”, rather, it had to earn its way by “maximis[ing] the social benefits and minimis[ing] the social costs to Australians”, the very point made by Prof. Lamberton.

1.11    Next, Mr Jones told the Parliament that the patent system was “out of kilter” with those of its major trading partners.

1.12    Mr. Jones said that “by strengthening Australia's patent law and by incorporating more universal standards within that law”, the Patents Bill, 1989 would place Australia “in a sounder position in relation to the negotiations in both GATT and WIPO”. He also said that “an adjustment of the standards of novelty and inventiveness” would require testing patent applications “against disclosures in documentary form anywhere in the world” and this was a desirable outcome in that it would “make it harder to get a ... standard patent” in Australia.

1.13    However, a mere 22 years later, in a report entitled, ‘Getting the Balance Right’, IP Australia has acknowledged that “Australia’s patentability standards are set at a level that is lower than the standards set in countries who are our major trading partners” particularly in regards to the standards “for full description of inventions” and “inventive step”. The consequences, according to IP Australia are significant.

These differences potentially upset the balance between the patent system and competition. They allow the grant of broader patents in Australian than elsewhere, and they allow the grant of patents that may disclose less information about the inventions that they claim than is disclosed elsewhere. This reduces access to follow-on innovation for Australian innovators and the advantages that flow to Australian consumers from access to information about new technology and competition in the Australia marketplace.

1.14    So in much the same way as Mr Jones did in 1989 with the Patents Bill, the present Minister for Industry, Innovation, Science and Research, Senator the Hon Kim Carr, has done with the Raising the Bar Bill, 2011.

1.15    And while the Raising the Bar Bill, 2011 has been referred to in the majority report, we question its relevance in the context of this inquiry particularly when the email that accompanied the Bill’s release to stakeholders stated that the Bill did “not deal with gene specific issues” but was seeking to “raise [specific] standards across all technologies”. The problem is, the word ‘technologies’ is something of etymological stretch.

1.16    The Oxford Dictionary defines ‘technology’ to mean “the application of scientific knowledge for practical purposes”. But genes and proteins are not technologies. They are natural phenomena. For example claim 1 of Australian Patent 686004 entitled, In vivo mutations and polymorphisms in the 17q-linked breast and ovarian cancer susceptibility gene is a claim to genetic mutations that are causative of breast cancer in humans. How is that a ‘technology’?

Claim 1: An isolated nucleic acid coding for a mutant or polymorphic BRCA 1 polypeptide, said nucleic acid containing in comparison to the BRCA 1 polypeptide encoding sequences set forth in SEQ.ID No: 1 one or more mutations or polymorphisms selected from the mutations set forth in Tables 12, 12A and 14 and the polymorphisms set forth in Tables 18 and 19.

1.17    A closer inspection of the Tables referred to in this claim demonstrate that the source of the “isolated nucleic acid” of claim 1 are people with breast cancer. Table 12, at page 89 of the patent specification, specifically refers to ‘patients’ and identifies them by way of a number that provides public anonymity while enabling the researchers to know the exact physical source of the genetic “mutations or polymorphisms” linked to breast cancer. That it does so is beyond argument given that another column is headed “Age of Onset”. The information contained in the table also specifies the nucleic and amino acid sequences linked to the same “mutations or polymorphisms”. Moreover, the claim itself makes no reference to, nor is it qualified by, any practical application to which the biological material may be put. It is a claim, pure and simple, to the biological material, that is, that part of the human genome linked to breast cancer.

1.18    Our confidence in our view is fortified by the position adopted by the U.S. government, as argued by the U.S. Department of Justice in its amicus curiae brief filed with the U.S. Court of Appeals for the Federal Circuit (CAFC) in October 2010.

1.19    The brief said:

The mere fact that genes do not occur in “isolated” form in nature does not provide a principled basis for patent-eligibility. See Intervet, 617 F.3d at 1294-95 (Dyk, J., concurring in part). Many natural products — coal beneath the earth, cotton fibers mixed with cotton seeds, the stigmas of the saffron flower — must be physically separated, i.e., “isolated,” from their natural environments before becoming useful to mankind, but few would doubt that coal, cotton, and saffron are products of nature and not patent-eligible. Likewise, the unique nucleotide sequence that induces human cells to express the BRCA1 protein is no more an invention of appellants or NIH when captured in a test tube than in its natural context in the human body. The process of applying restriction enzymes to select and extract a naturally occurring segment of DNA in the human genome from its chromosomal environment (now well understood in the art) was undoubtedly patent-eligible when it was first conceived, and an improved process for doing so may be the subject of a patent in the future. But the isolated DNA segment itself remains, in structure and function, what it was in the human body.

1.20    Just as ‘coal’, ‘cotton fibres’ and the ‘stigmas of saffron flowers’ are not technologies, nether is a biological material that has been isolated, removed or extracted from the natural world if it is identical or substantially identical to how it exists in nature. Furthermore, if the biological material is also new or unknown, its elucidation is an act of discovery, not an act of invention. Therefore, the discovery of a hitherto unknown microbe, plant or animal or any component of each of these things, even if there is a new and practical application to which they can be put to, is not an act of invention in regard to the biological material per se. More is required. The U.S. Supreme Court in Diamond v Chakrabarty 100 S. Ct. 2204 (1980) established the requisite legal threshold for the purposes of U.S. patent law in 1980. The Supreme Court held that in genetically modifying a naturally occurring bacterium so that it would degrade crude oil, Dr. Chakrabarty had produced a new bacterium with markedly different characteristics from any found in nature and which had the potential for significant utility.

1.21    The fact that the process of discovery can also be expensive, risky and time consuming does not justify patenting the end result. Again, support comes from the U.S. Supreme Court. Justices Breyer, Souter and Stevens in Laboratory Corporation of America Holdings v Metabolite Laboratories Inc 126 S. Ct. 2921 (2006) held that a principle which “finds its roots in both English and American law” prevents patent protection extending to “laws of nature, natural phenomena and abstract ideas” not because “‘laws of nature’ are obvious, or that their discovery is easy, or that they are not useful [for] such matters [even though they] may be costly and time consuming; monetary incentives may matter; and the fruits of those incentives and that research may prove of great benefit to the human race ... [but because] sometimes too much patent protection can impede rather than ‘promote the Progress of Science and useful Arts’”.

1.22    In other words, while an invention can be the subject of a patent monopoly, a discovery cannot be. The deep seated principle which Justices Breyer, Souter and Stevens refer is so fundamental to the proper and legitimate function of the patent system that undermining it not only threatens the legitimacy of the patent system, but threatens our economic system, which is foremost based on free competition.

1.23    Sixteen years after IPAC’s report, the Intellectual Property and Competition Review Committee (IPCRC) examined the impact of intellectual property on Australia’s economic system. In its report, presented to both Senator the Hon. Nicholas Minchin, then Minister for Industry, Science and Resources and the Hon. Daryl Williams AM QC MP, then Attorney-General, in September 2000 IPCRC reinforced the importance of maintaining a clear division between discovery and invention. The IPCRC report stated:

The Committee considers that the goals underpinning the National Competition Policy are well served by a patent policy that rigorously distinguishes between discoveries that advance our understanding of the nature, structure and properties of matter, and inventions that apply this understanding to useful products and processes. Within such a policy, only the latter should qualify for patent protection. (bolding added, italics original)

1.24    While IPRCR’s report took into account the approach taken by the High Court of Australia in The Commissioner of Patents v National Research Development Corporation (NRDC) (1959) 102 CLR 252, it did not rely solely on the NRDC decision. Importantly, IPCRC went beyond NRDC because “other considerations reinforce the need to distinguish between discovery and invention”. This contrasts sharply with the more limited analysis applied by ACIP in its Patentable Subject Matter Report. The IPCRC’s report explained the serious economic consequences of blurring the line between discovery and invention:

It is important that patent rights are clearly defined in a way that the difficulty and costs for the public or a competitor to determine the scope of a patent right are kept within reasonable limits. This result would not hold were the patent right extended to discovery. In particular, although ‘discovery’ is a heterogeneous category, it seems reasonable to suppose that it can be far more difficult to define and enforce the scope of a patent claim relating to, say, a law of nature than to a particular useful application of scientific and technological principles. Moreover, with the passage of time, it becomes ever more difficult to identify the uses in which a particular principle is embodied. Property rights in discoveries would therefore be costly to define and implement and could give rise to unreasonable barriers to potential competitors or to those who wished to use the ‘discovery’ in other fields of endeavour. It may also add very significant burdens on scientific communication. (emphasis added)

1.25    As regards the ACIP Patentable Subject Matter Report, which itself sprang from one of the recommendation in the Australian Law Reform Commission’s Inquiry into the patenting of human genes, ACIP’s recommendation to abandon the ‘manner of manufacture’ test is, in view of both the IPAC and IPCRC reports, concerning.

1.26    Not only did the IPAC report specifically consider the ‘manner of manufacture’ test, but, having done so recommended its retention in the Patents Act, 1990 in spite of the fact that one of the key objectives of the legislation was the use of plain, modern and, relatively, simple language. The fact that IPAC was determined, in view of this Ministerial mandate, to retain the reference to s.6 of the Statute of Monopolies, 1623 suggests that the ‘manner of manufacture’ test cannot be as easily overlooked as ACIP has done. The IPAC report said this:

We consider that the existing concept operates quite satisfactorily. It has the advantage of being underpinned by an extensive body of decided case law which facilitates its application in particular circumstances. At the same time it has, in the past, exhibited a capacity to respond to new developments.

1.27    Furthermore, the IPCRC Report took the same approach 16 years later and after taking into account the operation of the Patents Act, 1990, over a 10 year period. IPCRC stated:

The Committee believes that Australia has on the whole benefited from the adaptiveness and flexibility that has characterised the ‘manner of manufacture’ test. As a result, we recommend that this test be retained.

1.28    Specifically, in the context of gene patenting, the IPCRC looked at the ‘manner of manufacture’ test and examined how an initiative taken by the U.S. Patent and Trade Mark Office (USPTO) could be applied in Australia to deal with the issues that gene patenting was then raising. The USPTO had proposed the implementation of ‘utility’ guideline for use by U.S. patent examiners in their assessment of patentability, in an attempt to reinforce the distinction between discovery and invention under U.S. patent law. That guideline has since been implemented in the U.S. The IPCRC report described the effect of this guideline as follows:

The implementation of these guidelines would preclude the patenting of discoveries for which a specific, substantial and credible use has not been defined [in the claim].

1.29    That said, in ACIP’s Patentable Subject Matter Report, none of ACIP’s 11 recommendations adopted the IPCRC recommendation. To the contrary, at page 13 of the ACIP report, ACIP recommended that the Patents Act, 1990 be amended by simply repealing the ‘manner of manufacture’ test entirely and replacing it with a test based solely on the following words:

“an artificially created state of affairs in the field of economic endeavour”.

1.30    What is relevant, in our opinion, is to contrast the approach of the IPCRC with that of ACIP. The IPCRC report made it clear that “a specific, substantial and credible use” of a naturally occurring biological material, such as a gene, was essential to be part of the definition of the invention as defined in the patent claims. It was not, as ACIP recommend, a matter for the “specific, substantial and credible use” to be described in the patent specification only.

1.31    The problem with ACIP’s recommendation is that absent a causal link between a naturally occurring biological material and “a specific, substantial and credible use” in the patent claims, the scope of patentable subject matter is broadened beyond the present ‘manner of manufacture’ test. Artificiality effectively becomes the only criterion to be satisfied in order to meet ACIP’s patentable subject matter threshold since the criterion of ‘economic endeavour’ can be assumed to apply even to an isolated DNA sequence.

1.32    In other words, should ACIP’s recommendation be adopted, literally anything artificial, including a human gene that has been isolated from the human genome, will be patentable subject matter if the patentee can attribute “a specific, substantial and credible use” in the patent specification as opposed to the patent claims. This means it will be possible to claim an isolated biological material as one invention and claim the specific, substantial and credible uses of those materials as other inventions. The net effect of ACIP’s recommendation is to legitimise IP Australia’s policy.

1.33    We are of the opinion, however, that IPCRC’s approach is to be preferred over ACIP’s approach. The IPCRC report stated:

... mere discoveries - that is, the identification and specification of the nature, structure and properties of existing matter and its interaction - should continue to be excluded from the class of patentable subject matter. We consider that this principle should exclude from the scope of patent protection the mere identification of a gene sequence, much as it would preclude the granting of a patent over, say, Mendel’s law.

1.34    The point being that regardless of which test is applied, whether it be the current ‘manner of manufacture’ test or the one proposed by ACIP, the Bill which is the subject of this Inquiry seeks to impose a per se prohibition so that, consistent with the IPCRC’s position, the Australian patent system “should continue” to exclude from “the class of patentable subject matter” any subject matter that comes within the new amended s.18(2)(b) that was tabled by Senator Heffernan during the Committee hearings, namely:

biological materials whether isolated or purified or not and however made, which are identical or substantially identical to such materials as they exist in nature. (emphasis added)

The new amended s.18(5) which accompanied Senator Heffernan’s proposal provided new definitions:

biological materials, in section 18, includes DNA, RNA, proteins, cells and fluids and their components.

identical, in section 18, means a biological material which is structurally and functionally identical.

The reason being that these things are not the product of invention, but the product of discovery.

The new amendment in full is attached to this dissenting report as ‘Appendix A’

1.35    Artificiality should not be the sole criterion of patentable subject matter and it is incorrect, in our opinion, for ACIP to assert that the central principle of the NRDC decision is accurately reflected in its key recommendation particularly when this passage in NRDC is taken into consideration:

The statement was that fruit and other growing crops, although the assistance of man may be invoked for their planting and cultivation, do not result from a process which is a "manner of manufacture". This may be agreed. However advantageously man may alter the conditions of growth, the fruit is still not produced by his action.

1.36    The High Court in NRDC draws a distinction between processes that can be used in the production of naturally occurring things, such as fruit, and the naturally occurring things themselves. According to the High Court, a new process to grow fruit may be patentable subject matter, but the fruit itself is not. This is completely consistent with the Bill.

1.37    NRDC is often portrayed as the definitive case on patentable subject matter. However, it is important to appreciate three relevant facts about NRDC. First, it was decided in 1959. Next, the invention in that case had nothing to do with a naturally occurring biological material, rather it was about a horticultural process. Finally, legal controversy was whether the effect produced by the horticultural process, which involved the use of known  herbicides to kill weeds without killing the crops over which the herbicide was sprayed, was itself capable of being patented. And while NRDC is an important decision with respect to the ‘manner of manufacture’ test, it must be applied in context taking into account, what IPRCR described as, “other considerations[which] reinforce the need to distinguish between discovery and invention”.

1.38    Thus, the Bill seeks to both clarify the existing patent law and overturn a policy which IP Australia adopted in 1988 and which we believe to be inconsistent with that law.

1.39    IP Australia’s policy, first developed by the USPTO in concert with the European Patent Office and the Japanese Patent Office in June 1988, has not been judicially reviewed in Australia. As a result, IP Australia has perused a policy based on an internally generated and untested interpretation of NRDC, an interpretation apparently shared by ACIP, which ignores the concerns expressed by IPCRC that NRDC was not definitive on its own and that “other considerations reinforce the need to distinguish between discovery and invention”.

1.40    Once again, our opinion is backed up by the U.S. Department of Justice which, representing the U.S. government, has criticised the very policy which the USPTO adopted in 1988. The U.S. Department of Justice states:

Methods of identifying, isolating, and using such DNA molecules may be patented, as may any new and useful alteration of those molecules through human intervention. Genomic DNA itself, however, is a product of nature that is ineligible for patent protection, whether or not claimed in “isolated” form. We acknowledge that this conclusion is contrary to the longstanding practice of the Patent and Trademark Office, as well as the practice of the National Institutes of Health and other government agencies that have in the past sought and obtained patents for isolated genomic DNA. The district court’s judgment in this case, however, prompted the United States to reevaluate the relationship between such patents and the settled principle under Supreme Court precedent that the patent laws do not extend to products of nature. For the reasons below, the United States has concluded that isolated but otherwise unaltered genomic DNA is not patent-eligible subject matter under 35 U.S.C. § 101. (italics added)

1.41    And while the recent Myriad CAFC decision brought down on 29 July 2011 disagreed with the U.S. government, the 2:1 decision is now under appeal. We also take into account that judicial opinion in the U.S. is evenly divided on the issue once the original decision is taken into account. Consequently, a definitive ruling on the legality of the policy under U.S. patent law is not likely to occur any time soon.

1.42    The question for this Parliament is: should it wait for the controversy to be resolved in the U.S. or Australian courts or should it resolve the issue now by way of legislative amendment to the Patents Act, 1990?

1.43  A relevant consideration for the Parliament are the circumstances described in the attached media article whereby Myriad was under no compunction because of its patent rights to manufacture or provide or allow others to provide a genetic test that improved its reliability or accuracy.  (see Appendix B)

 

THE SUBMISSIONS

2.1       The Bill is the subject of much criticism. The criticism, however, has come mainly from sectorial interests associated with the biotechnology, pharmaceutical and agri-biotech industry. Along with Ausbiotech, the peak biotech industry association in Australia, the critics include patent attorneys, patent lawyers, research scientists, patent and legal professional associations, medical and scientific research institutes and their representative professional bodies and Australian universities who are either the holders of patents which contain claims to biological materials that are identical or substantially identical to those that exist in nature or who have acted for, procured, or benefited directly or indirectly from such patents and their procurement.

2.2       The Bill, however, is supported, as written or in principle, by a more representative section of the Australian community that includes Cancer Council Australia, Department of Health and Ageing, the South Australian government, the Human Genetics Society of Australasia, the Australian Medical Association, Meat and Livestock Ltd, Cancer Voices Australia, Cancer Voices New South Wales, the Royal College of Physicians, The Royal College of Pathologists of Australasia, the Tasmanian government, Breast Cancer Action Group NSW and the Generic Medicines Industry Association.

2.3       The Royal College of Pathologists of Australasia (RCPA), which declared in its submission that it does not “depend on revenue from gene patents” supports the intent of the Bill because:

(a)       it holds “grave reservations” over policy adopted by IP Australia.

(b)       “a person with a patent over a gene sequence can restrain another person from using that sequence to make a medical diagnosis.”

(c)       “The patent holder did not create the gene, the mutation, or the disease - but the patent holder can restrict a doctor’s freedom to make a diagnosis. This restriction is not based on the machine or process by which the doctor might make the diagnosis, but is focused on the biological basis of the disease itself.”

(d)       “The power of the patent holder in this situation compromises the very foundation of health care in this country. Such a restriction should have no place in our society.”

(e)       “biological materials which are ‘identical or substantially identical to such materials as they exist in nature’ should not be patentable. We would go further, arguing that any substance which is identical to that found in nature should not be patentable. Such substances are discoveries, not inventions.” (emphasis added)

2.4       On the other hand the Human Genetics Society of Australasia (HGSA) unequivocally supports the Bill because:

(a)         “of serious concerns relating to the current operation of the patent system in relation to patenting of genes and the balance of commercial benefits of patent protection versus social, community and health impacts.”

(b)         “identifying naturally occurring genetic material and its function is not an invention but a discovery.”

(c)         “gene sequences are not of themselves a new ‘manner of manufacture’ and that they have more of a collaborative genesis than other inventions.”

2.5       The HGSA submission is adopted by The Royal College of Physicians in full.

2.6       The South Australian government unequivocally supports the Bill as proposed because:

(a)         “broad patent claims specifically related to human genes and biological materials, as they exist in nature, have been shown to have an adverse impact on the provision of health care, including medical research, the scope of the provision of training and accreditation of health care professionals and the cost of performing certain genetic tests within South Australia.”

(b)         it provides “greater clarity ... by ensuring that the discovery of naturally existing biological material is not patentable.”

2.7       The Department of Health and Ageing supports the “intention” of the Bill because:

(a)         “genes (or portions of genes) and biological materials that have a natural homologue (i.e. are identical to those that are ‘naturally-occurring’) are not inventions and hence should not be considered patentable subject matter.”

(b)         “The intrinsic nature and function of a gene is not altered when it is isolated, purified or cleaved to remove the regions that do not code for the formation of proteins.”

(c)         “Free access to genetic material, including the normal genome and its mutations (as well as information relating to the association of genes with disease), is essential to promote continued innovation in the prevention, diagnosis, prognosis and treatment of disease.”

2.8       Cancer Council Australia supports the intent of the Bill because it has “the potential to prevent monopolisation of genetic sequences and other biological substances that should be freely available for competitive research and to help ensure equitable access to healthcare.”

2.9       The Generic Medicines Industry Association supports the intent of the Bill because:

(a)       “the Australian pharmaceutical and biopharmaceutical industries, innovation, research, and market competition have been unnecessarily stymied because of the increasing reach of patent rights.”

(b)       “Patent monopolies regarding critical pharmaceuticals and biopharmaceuticals which have been invalidated elsewhere have either remained unchallenged in Australia (due to the relatively small size of the Australian market) or have been held to be valid in Australia (due to significant differences in Australian law). Australian industry and the Australian public have been disadvantaged and will continue to be disadvantaged if these issues are not rectified.”

2.10    Mylan, Inc a U.S. company and the world’s third largest producer of generic medicines that operates in Australia via its fully owned subsidiary, Alphapharm, supports the Bill because:

(a)       The Bill “aims to redress the imbalance in the patent framework in Australia by raising the bar for what is considered to be patentable material.

(b)       “The Bill merely seeks to clarify and apply the true intent of patent law and amend that part of the Patents Act that provides the patentability criteria for the grant of a valid patent monopoly.”

(c)       “Biological materials that are identical or substantially identical to any that exist in nature should not be patentable because they are a product of nature and have not been transformed into a product of humankind, historically regarded as a prerequisite for patentability.”

(d)       “The patenting of naturally occurring biological materials is stifling medical and scientific research as well as the diagnosis, treatment and cure of human illness and disease. Such patenting prevents doctors, clinicians and medical and scientific researchers from gaining free and unfettered access to these materials, however made, that are identical or substantially identical to such materials as they exist in nature.”

2.11    The Australian Medical Association supports the Bill because:

Allowing doctors, clinicians, and researchers free and unfettered access to such biological materials has the very real potential to facilitate greater, more competitive research into the development of genetic technologies. This would benefit patients, health care professionals, and the broader health care system by allowing more equitable access to a wider range of genetic tests and related technologies.

2.12    Meat and Livestock Limited, a producer-owned company investing $47 million annually on meat and livestock research and development on behalf of 47,000 cattle, sheep and goat producers, supports the Bill because:

(a)       “MLA’s genetic and genomic improvement programs are encountering many of the same issues currently being debated in humans, as these same problems also apply to gene discovery in animals and plants. More and more, we are seeing that general discoveries of nature have sought to be patented. This patenting is hampering the evolution of our research and our understanding of the underlying causes for genetic variation in animals and plants, and improvement in our national genetic improvement programs.”

(b)       “If the protection of genes and gene markers continues, it will be imperative for MLA and the research organisations involved to reassess their current strategy and investment in genetic and genomic research, development and implementation. At this point in time there are no obvious ways to avoid the loss of research effectiveness or the substantially higher transaction costs. This has the potential to stifle our ability to continually improve the productivity and sustainability of the Australian meat and livestock industry.”

ANSWERING THE CRITICISMS

3.1       The Bill seeks to achieve two outcomes which we maintain are vitally important to the credibility of Australia’s patent system. The first is to restore the full scope of the ‘manner of manufacture’ test as it was understood and applied in Australian patent law prior to 1994. It was this test which both the IPAC and IPCRC reports recommended be retained. The critics of this aspect of Bill have failed to address this point. The second, is to reinforce the distinction between discovery and invention in respect of one specific context. The IPCRC report made specific reference to the importance of the maintenance of this distinction only a decade ago and after TRIPS was in operation. The critics of the Bill have raised a plethora of excuses as to why this Bill should not be passed but none of them have addressed the plain simple fact that a gene and a protein which are identical to what exists in nature, regardless of its state or how it is made, is not something that anyone invented. And if there is no inventor, how can there be an invention?

Overruling Anaesthetic Supplies Pty Ltd v Rescare Ltd (1994) FCA 1065 and Bristol-Myers Squibb Co v F H Faulding & Co Ltd (2000) FCR 524

3.2       Before Anaesthetic Supplies Pty Ltd v Rescare Ltd (1992) 25 IPR 119 the scope of the ‘manner of manufacture’ test was broader in that the proviso in s.6 of the Statute of Monopolies, 1623 was understood to empower the courts to invalidate, on the grounds of public policy, patents that failed to meet the social, economic, ethical or moral norms of Australian society. Specifically, the issue in that case was whether a method for the treatment of sleep apnoea in a human being was patentable subject matter. The Statute provides that a patent is invalid if the subject matter is “contrary to the Law, ... mischievous to the State, by raising Prices of Commodities at home, or Hurt of Trade, or generally inconvenient”.

3.3       In Rescare, Justice Sheppard, in dissent, held that it was not. He held that even though the Parliament had not in the Patents Act, 1990 expressly banned patents over medical methods, as it had done with regards to process for human cloning (s.18(2)), it did not mean that the courts were not empowered to rely on the proviso to do so. In his opinion, it was “not going too far” in circumstances where the exercise of a patent owner’s exclusive patent rights over the use of an invention “might mean the death or unnecessary suffering of countless people”, to rely on the proviso to invalidate the patent. In his view the technology in issue and the human disease itself, which he believed to be “life-threatening”, meant that a patent that sought to monopolise this method of human treatment was not ‘manner of manufacture’.

3.4       Justices Lockhart and Wilcox, however, disagreed. Wilcox J. explained “that, in the face of apparently deliberate decisions by Parliament not to build this particular exclusion into its legislation, courts should be hesitant to introduce the exclusion by reference to those very general principles.”

3.5       Six years later in Bristol-Myers Squibb Co v F H Faulding & Co Ltd the Full Federal Court followed Rescare. In doing so, the Court overruled the decision of Justice Heerey who, in attempting to apply the proviso, invalidated a patent over a method for the administration of taxol on the ground that it was not a ‘manner of manufacture’. Taxol was a well known chemotherapeutic, first discovered in 1977, but which was not approved for use in the treatment of breast cancer until 1994. It is important to appreciate that there was nothing new in taxol per se nor in its use as a chemotherapeutic drug.

3.6       Claim 1 was as follows:

A method for treating cancer in a patient suffering therefrom including infusing from 135 to 175 mg/m2 of taxol over a duration less than 6 hours wherein said method results in a reduction of hematological toxicity and neurotoxicity compared with infusing greater than 170 mg/m2 of taxol over a duration of 24 hours.

3.7       The claim was to a method of human treatment defined by (a) the length of time over which taxol was administered and (b) the actual dosage. Apparently, the new dosage regime provided some benefits to patients but it was, at best, an incremental advance not a medical breakthrough.

3.8       The trial judge, Heerey J., made that very point in deciding that it was not a ‘manner of manufacture’:

At the priority date the material (taxol) had been known for many years. It is a naturally-occurring compound and thus in itself unpatentable. In the words of the specification, taxol had “shown great promise as an anticancer drug” and “been found to be an active agent against drug-refractory ovarian cancer” ... . The properties which made taxol effective against cancer, that is to say its biological mechanism, were well known. They had been discussed in the articles referred to in the specification which were “incorporated by reference as if reproduced in full below” ... . Thus the specification is not merely a claim of a “new use of an old substance” ... but a claim for the same use of an old substance. (italics added)

3.9       It is important to note that the trial judge had made findings of fact based on the evidence presented at the trial that the patent sought to monopolise, via a method claim rather than a product claim, a substance (which was derived from a biological material found in the bark of a Pacific Yew tree) that was neither new nor inventive if the use of that substance was directed to a specific form of human treatment. In other words the trial judge had formed the view that there was no merit in the patent sufficient to warrant the grant of a patent monopoly.

3.10    The Full Court, however, disagreed. According to Black C.J. and Lehane J., “drawing a logical distinction which would justify allowing patentability for a product for treating the human body, but deny patentability for a method of treatment was an insurmountable problem”. Finklestein J. merely took the view that it was “not the function of a court [to adjudicate] on an issue such as this ... [and] if public policy requires a different result, it is for the Parliament to amend the 1990 Act”.

3.11    As a consequence of Rescare and Bristol-Myer decisions the Federal Court effectively repealed the proviso in s.6 of the Statute of Monopolies, 1623 thereby negating an important check and balance in the  patent system that had been a part of the ‘manner of manufacture’ test for nearly 400 years.

3.12    This result, however, was inconsistent with the Parliament’s intent. As the then Minister, the Hon Barry Jones MP, said during the second reading speech, one of the main objectives of the Patents Bill, 1989 was to “make it harder” to get a patent. Another was to “maximise the social benefits and minimise the social costs to Australians”. (emphasis added) The fact that s.18(2) expressly banned patents over human cloning, introduced into what became the Patents Act, 1990 by an amendment moved by Senator Harradine, did not, with respect, override these two central objectives nor provide the courts with a mandate to ignore the full scope of the ‘manner of manufacture’ test.

3.13    These two decisions did the exact opposite by first making it easier to get a patent and second by ignoring the net social impact on the Australian people.

3.14    Far from being “superfluous”, a charge made by Prof. Natalie  Stoianoff, Dr. Ann Kurts and Dr. Mark Lutherborrow from the University of Technology, Sydney and relied on by the committee as a point of criticism, the passage of this aspect of the Bill will restore both the original intent of s.18(1)(a) Patents Act, 1990 and full scope and operation of the ‘manner of manufacture’ test.

3.15    The committee in the report stated:

“Professor Dianne Nicol, Mr Johnathon Liddicoat, Dr Jane Nielsen and Mr Ben Mee considered that the change would “add nothing to the development or state of the law relating to ‘manner of manufacture’ and would not achieve any paradigm shift in the relevance of social and ethical dimensions to determinations of patentability’.”

3.16    But this criticism, respectfully, misses the point because this aspect of the Bill is not seeking to “add” something new or revolutionary to the operation of the Patents Act, 1990, rather it is merely seeking to restore an important check and balance and one that was never intended to be removed in the first place. Once it is restored this check and balance will, once again, be available to the courts and to apply the law, this time, with the benefit of an amendment that overrules these two Federal Court decisions.

3.17    In regards to the committee’s reference to the joint submission by the DIISR and IP Australia and to the ACIP Patentable Subject Matter Report, we are of the view for the reasons already provided that the IPAC and IPCRC reports and recommendations on this issue are to be preferred.

Exclusion of biological materials

3.18    The central criticism of the second or principle aspect of the Bill, which is contained in the proposed s.18(2)(b) to the Patents Act, 1990, is that the terms ‘derivatives’, components’ and ‘substantially identical’ are undefined and thereby open to a variety of judicial interpretations that could, according to Professor Dianne Nicol, Mr Johnathon Liddicoat, Dr Jane Nielsen and Mr Ben Mee “have far-reaching or limited effect”.

3.19    Related to that criticism is that the term ‘biological materials’, which is defined, would “introduce substantial and wide ranging uncertainty  in the Patents Act 1990 arising principally from the scope and potential impact of these proposed amendments, particularly in relation to the ambiguity, or lack of clarity which exists in relation to most of the terminology to be introduced”.

3.20    We are, however, of the opinion that while the Bill provides the courts with scope to interpret and apply these terms in the context of the Patents Act, 1990, these criticisms are exaggerated. Every day in the Parliament legislation is passed that is open to judicial scrutiny and interpretation. The fact that there is no iron clad guarantee that the courts will necessarily apply the law as intended or proposed does not mean that Parliament does not pass legislation. Nor that it passes legislation that is so prescriptive so as to leave the courts with no ability to do their job. It is frankly absurd to suggest that the courts will not be able to, with the benefit of submissions from learned counsel, come to a workable definition of these terms that is also consistent with Parliament’s intention. Indeed, it does so happen, as we explain in the case of Rescare and Bristol-Myers decisions, that sometimes the courts do get it wrong. But when they do Parliament is always there to right that wrong if the Parliament deems it necessary to do so.

3.21    As Dr. Palombi explained, the term ‘substantially identical’ is undefined in the Trade Marks Act, 1995 but that was not a reason not to pass that legislation, nor has the lack of a definition created legal uncertainty in the courts.

3.22    Regardless of the fact that we believe the Bill as originally introduced meets the criticisms, it was decided to reformulate s.18(2)(b) and the relevant definitions in s.18(5) in a new amendment. This amended version of the Bill is, as already stated, attached to this dissenting report.

3.23    In so doing the terms ‘derivatives’, ‘components’ and ‘substantially identical’ are deleted from s.18(2)(b) and a definition of ‘identical’ is inserted in s.18(5) so as to make it clear that the scope of the express exclusion is directed to only those biological materials that are structurally and functionally identical.

3.24    Accordingly, a biological material that is structurally identical to one that exists in nature but is functionally different will fall outside of the scope of the express prohibition. This means that if a biological material can be made to function in a way that it did not function in nature that biological material with its new function will be patent eligible.

3.25    This is the kind of outcome which we expect would have resulted with the original Bill had an Australian court been given the opportunity to interpret the term ‘substantially identical’.

Increased possibility of litigation

3.26    It follows, respectfully, that litigation goes hand-in-glove with legislation. Everyday the courts are called upon to adjudicate disputes involving litigants who take different approaches to the same legislation and invite the courts to prefer one interpretation over another. For this committee to take seriously the assertion by Ausbiotech that the Bill will lead to a “frenzy of legal activity” and use that to criticise the Bill is to ignore this fact.

3.27    In any event, patent litigation is not new. In fact the patent system heavily relies on patent litigation to filter out patents that may be invalid. The Patents Act, 1990 in s. 20(1) expressly denies any guarantee of validity in regard to a granted patent so as to encourage the use of the courts as a filtering process.

3.28    The claim by Prof. Dianne Nicol, Mr. Johnathon Liddicoat, Dr. Jane Nielsen and Mr. Ben Mee that the Bill will be the subject of “protracted and expensive litigation” appears to ignore the fact that nearly all patent litigation is protracted and expensive. The criticism by the patent attorney and law firm Griffith Hack, that “there will be many millions of dollars wasted on patent attorney and lawyers’ fees debating the interpretation of the exclusion, money that would be better spent on research and commercialisation”, appears to ignore the significant costs already inherent within the patent system.

3.29    Millions and millions of dollars each year are spent by litigants embroiled in patent litigation, yet this is probably the first time that the cost of patent litigation has been seriously advanced as an excuse not to pass patent-related legislation.

Efficacy of the Bill

3.30   What are the Bill’s objectives? First to restore the ‘manner of manufacture’ test to how it was originally intended by overturning Rescare and Bristol-Myers. Second, to prohibit the patenting of any biological material that is identical or substantially identical to what exists in nature. In our opinion, the Bill achieves both of these objectives.

Need for the Bill

3.31    Since 1988 IP Australia has pursued a policy leading to the grant of thousands of patents over biological materials that no one invented. These materials have been isolated from their natural environments or have been synthetically duplicated through some biotechnological process. Either way, in these states the biological materials are identical or substantially identical to those that exist in nature either structurally or functionally.

3.32    The submissions referred to earlier (paras 2.3 – 2.14) provide evidence of the problems caused by these patents. In addition evidence provided to the Senate Community Affairs References Committee also showed specifically how patents of this kind have delayed or interfered with medical and scientific research into BRCA 1 and BRCA 2 genetic testing. The majority report simply ignores this evidence and prefers the submissions of Ausbiotech and GlaxoSmithKline. We, however, do not. In our opinion, there is ample evidence to show that patents of the kind in issue have been and continue to be problematic particularly when they interfere with the provision of medical services.

3.33    The majority report did not appear to take account the evidence that clearly pointed to serious and fundamentally important health security concerns. For example, Dr. Palombi, in submissions made to the Senate Community Affairs References Committee and to this Committee, gave evidence of a number of instances of how patents of this kind have interfered with or restricted access to diagnostic tests or medical treatment going back to the early 1990s when Chiron Corporation was granted patents over the hepatitis C virus (HCV). In this case the Australian patent over HCV prevented Australia doctors and clinicians from developing their own diagnostics. The patentee simply refused to permit anyone other than its licensing partners from making HCV diagnostics, but there was a serious issue of the reliability of the Chiron licensed HCV tests. In fact, so serious was the issue that the Ass. Prof. Locarnini, the then Director of the Fairfield Infectious Diseases Hospital, said at the time (1995):

Blood banks in Australia and elsewhere are losing blood donors permanently. This means that the source of blood needed on a daily basis by the Australian community and other communities, is being seriously threatened. Once a blood donor is labelled as an HCV-indeterminate or HCV positive, their blood is excluded from the blood supply, even though they maybe truly negative for HCV.  In other words, blood donors are being falsely labelled as ‘HCV positive’ when in fact they are not because of the inadequacies of the present anti-HCV test kits.

The fact that third generation anti-HCV test kits are giving such results is really saying something: it means in a low risk group such as blood donors, the present generation anti-HCV tests are detecting something other than HCV and giving false positive results in up to 75% of cases. It has been five years since the first anti-HCV test kits were first used in Australia and the manufacturers of these kits have not yet produced a kit which is as sensitive and specific as the test kits for HIV.  This is clearly unsatisfactory.

3.34    In another example, Dr. Palombi provided evidence about the denial of medical services to infants at Westmead Hospital, western-Sydney’s main public hospital. In this case infants were denied access to a genetic test for Dravet syndrome, a severe form of epilepsy, because of a patent over the genetic mutations to the human SCN1A gene linked to the disease. The patent was granted by IP Australia to Bionomics, an Australian company, which in turn granted an exclusive license to Genetic Technologies, another Australian company. The denial of service occurred in spite of the fact that over $1 million of Australian taxpayer funds had been provided to both an Australian University in the research leading to the identification of the relevant genetic mutations and to Bionomics for the subsequent development of a genetic test. Part of the evidence provided by Dr. Palombi was an article published in the Sydney Morning Herald on 29 November 2008. An excerpt from that article, entitled, ‘Sick babies denied treatment in DNA row’ is as follows:

Specialists are sending blood samples to Scotland, and only babies whose seizure patterns closely resemble Dravet syndrome are tested. This means children with slightly different symptoms may be treated with the wrong medicines for months, potentially retarding their development. “It’s frustrating that we can't  get the test done readily,” Dr. Gill said. “If we could include it as part of the work-up, we could  identify them early.” At present the diagnosis is often delayed until the child is 12 to 18 months old. This is after the  optimum time for treatment with strong drugs that are unsuitable  for most babies with epilepsy but are used for infants with Dravet’s to control severe seizures that can damage the brain. Standard childhood epilepsy medications are ineffective with Dravet’s and may worsen it, Dr. Gill said.

SCN1A is the most important epilepsy gene discovered, Dr. Gill  said, and is abnormal in about 70 per cent of children with Dravet syndrome, which affects about one in 30,000 babies - almost 10 per cent of infant epilepsy cases. About one in 20 children have a seizure when they develop a fever, though only a minority had epilepsy, Dr. Gill said.

3.35    Far from being a diminishing problem, Prof. Ian Olver OA, CEO of Cancer Council Australia, believes the problem is only going to get worse as medical treatments become tailored to an individual patient’s genetic make up. In evidence he gave to the Senate Community Affairs References Committee in August 2010, Prof. Olver stated:

The position of the Cancer Council of Australia and the Clinical Oncological Society of Australia is that ... we need to change the law to reflect what we regard as a common sense approach. The timing of this is absolutely critical since genes and their products are increasingly going to become the targets of new treatments for a range of diseases. If I stick to cancer, we are seeing a paradigm shift in cancer treatments towards targeted therapies—and the targets are genes and gene products. We are going to see hundreds more of these over the next decade, so a change now would protect us before the floodgates open.

Investment in research and development in pharmaceuticals and biotechnology – the need for patent protection

3.36    The majority report relies heavily on evidence from DIISR, IP Australia, Ausbiotech, Medicines Australia, CropLife, Roche, Pfizer, Chemskill, the Institute of Patent and Trade Mark Attorneys and Prof. Dianne Nicol, Mr. Johnathon Liddicoat, Dr. Jane Nielsen and Mr. Ben Mee to criticise the Bill on the basis that it will have a negative impact on investment in research and development in the pharmaceutical and biotechnology industry in Australia.

3.37    Medicines Australia, for instance, produced a list of 28 medicines which it asserts would be threatened by the Bill.

3.38    Pfizer asserts that “a ban on the patenting of all genetic material and derivatives in Australia would halt commercial development and supply and access to a wide range of innovative medicines and health technologies in Australia”.

3.39    Roche asserts that clinical trials would be threatened in Australia.

3.40    Ausbiotech asserts that “the absence of patents for biological materials will be a serious disincentive for foreign and domestic private investors and others interested in commercialising innovation in Australia.”

3.41    However, these assertions are misleading, exaggerated and are made without any objective analysis of the scope of the Bill or the kinds of patents that which will be impacted by the Bill. And unfortunately the majority report has been led into drawing erroneous conclusions based on this evidence.

3.42    For example, the list of medicines provided by Medicines Australia (Table 1 at para 4.87, majority report) is supposed to back up the claim, made by Medicines Australia, that “it is uncertain whether these medicines would be eligible for patents in Australia if this bill becomes law”. The assertion is, however, made without any explanation as to how precisely the Bill, if passed, would preclude these medicines from being  be patent eligible. The language of the Bill in the proposed s.18(2)(b) is not directed to medicines. It does not say that a medicine which can treat a human being suffering from a specific disease or ailment is precluded from patentability. Rather the proposed s.18(2)(b) refers only to “biological materials ... which are identical or substantially identical to such materials as they exist in nature.” The words in italics qualify and narrow the scope of the prohibition to only biological materials that meet that specific criteria. Accordingly, biological materials that are materially different to what exists in nature, or medicines that contain such biological materials, would not be excluded from patentability.

3.43    Indeed, neither would medicines that contain naturally occurring biological materials, even if identical or substantially identical to those that exist in nature as a component, because medicines used to treat a specific human disease or ailment do not exist in nature. The majority report appears not to have taken account of this information and has instead relied on many unsubstantiated claims or comments that have provided little substantive analysis.

3.44    In 1618 (before the genesis of the modern Anglo-American patent system in 1624) the London Pharmacopoeia taught that natural biological materials could be used as medicines when isolated (that is, when removed from their natural environment) and purified (subjected to a process of purification). Strychnine, morphine, atropine and colchicines were all developed during the 19th century applying this very idea. The active ingredient of Aspirin, the famous trade mark applied to a drug containing acetylsalicylic acid, is a derivative of salicin, a substance found naturally in the bark of a willow tree. Salicin‐rich plants had been known for thousands of years to be useful in the treatment of fever, pain and inflammation. However, in 1838, the Italian organic chemist, Raffaele Piria, converted salicin into salicylic acid and although more effective (as a medicinal ingredient) than salicin it produced unpleasant side effects. It was not until 1897, when Bayer chemist Felix Hoffmann converted salicylic acid into acetylsalicylic acid, that the side effects were eradicated. In 1898 Bayer applied for patents over acetylsalicylic acid and in February 1900 the United States Patent and Trade Mark Office (USPTO) granted Bayer US patent 644,077. In the Bayer patent Hoffmann did not claim to have invented salicin; indeed, no mention is made of salicin nor the natural source of salicin. Rather, Hoffmann describes his invention by distinguishing it from an earlier attempt by another German chemist, Karl Kraut, to produce acetylsalicylic acid. Hoffmann declared in the patent:

According to my researches the body obtained by means of my new process is undoubtedly the real acetylsalicylic acid. Therefore the compound described by Kraut cannot be the real acetylsalicylic acid, but is another compound. In the following I point out specifically the principal differences between my new compound and the body described by Kraut.

It is important to note that Hoffmann was describing a new product that did not exist in nature. It was not merely a matter of isolating and purifying salicin from the bark of the willow tree. Apart from the fact that this kind of extraction had been done for thousands of years and therefore was not inventive, Hoffmann’s claim to invention focused on the new process which when applied to salicylic acid (an artificial derivative of salicin) produced “the real acetylsalicylic acid”. Thus the invention was a new artificial product produced by a new artificial process. The two were inseparable and Hoffmann’s patent was to acetylsalicylic acid manufactured by the specific process he had invented and disclosed in his patent. It was not to acetylsalicylic acid per se. And, as already noted, it most certainly was not to salicin, that natural source of acetylsalicylic acid. This is an important point of distinction in the context of the patents in issue because the inventions which are claimed by these patents, and which the Bill is directed to, are to nothing more than isolated genes, proteins and other naturally occurring biological materials. The genes and the proteins which they code for are, apart from being in an artificial environment, substantially identical structurally and functionally from those from which they have been derived.

3.45    It is important to understand that patents of the kind in issue contain claims that cover not merely biological materials per se which have been isolated or purified or synthesised by some biotechnological process. These claims are merely the beginning. And it should be noted that the biological materials covered by these claims have no prophylactic, therapeutic or curative properties in themselves. They are claims to either to isolated or purified nucleic acids or amino acids that are identical or substantially identical to those that exist in nature.

3.46    For example, the claim at para 1.13 is reproduced to illustrate the point:

Australian Patent 686004 entitled, In vivo mutations and polymorphisms in the 17q-linked breast and ovarian cancer susceptibility gene:

Claim 1: An isolated nucleic acid coding for a mutant or polymorphic BRCA 1 polypeptide, said nucleic acid containing in comparison to the BRCA 1 polypeptide encoding sequences set forth in SEQ.ID No: 1 one or more mutations or polymorphisms selected from the mutations set forth in Tables 12, 12A and 14 and the polymorphisms set forth in Tables 18 and 19.

This is not a claim to a medicine. In fact, the genetic sequence defined in the claim is linked to breast cancer. Essentially, this claim defines the invention to be a genetic trigger of breast cancer.

3.47    This claim, however, is only 1 of 30 claims. In addition to this claim are claims to the use of the biological material in genetic tests as well as other claims to methods and other biological materials which are not identical or substantially identical to those that exist in nature. These claims would not be affected by the Bill. In fact, if the Bill had been in operation at the time this patent was filed, 24 of the 30 claims would have been untouched by the Bill. (See Schedule A)

3.48    The 24 remaining claims enable Myriad Genetics, the patent owner, to exploit the invention as defined in each of these claims.

3.49    Neither will the Bill prevent the patenting of new, novel and inventive uses of naturally occurring biological materials in products, methods or processes. The freedom to operate and patent inventive medicines, therapeutics, diagnostics and cures remain untouched by the Bill.

3.50    Whatever incentive is provided by the Australian patent system in regards new and inventive medicines, therapeutics, diagnostics and cures remain open and available.

3.51    Further support for our view comes from the U.S. government’s amicus brief (para 1.19) particularly as the United States is home to some of the world’s largest biotechnology and pharmaceutical companies including Amgen, Genentech (owned by Roche), Novartis, Merck and Monsanto.

3.52    Despite the CAFC decision, handed down in the United States on 29 July 2011 reversing the earlier decision of Judge Sweet invalidating U.S. patents granted to Myriad Genetics over the mutant BRCA nucleic acids and proteins, the issue is far from being legally resolved.

3.53    On 25 August 2011 the American Civil Liberties Union (ACLU) acting for the plaintiffs in Association for Molecular Pathology et al v Myriad Genetics and others filed a Petition for Panel Rehearing with the CAFC. As a result the CAFC decision of 29 July is neither final nor definitive as a matter of U.S. law.

3.54    The Petition for Panel Rehearing summarises the grounds as follows:

... the majority erred in analyzing the chemical structure of the patented genes and gene fragments without considering (1) that the language of the patents defines the function, not the structure of the patented genes and gene fragments; (2) that gene fragments with the altered chemical structure identified by the Court exist in nature.

3.55    The issues raised by the Petition for Panel Rehearing is precisely the issue that the Bill attempts to resolve through legislative means in Australia. And the U.S. government supports this position.

3.56    The U.S. government stated in the U.S. Department of Justice’s Amicus Curiae Brief to the CAFC the following:

The extent to which basic discoveries in genetics may be patented is a question of great importance to the national economy, to medical science, and to the public health. This appeal consequently implicates the expertise and responsibilities of a wide array of federal agencies and components, including the Patent and Trademark Office (PTO), the National Institutes of Health (NIH), the Antitrust Division of the Department of Justice, the Centers for Disease Control and Prevention, the Office of Science and Technology Policy, and the National Economic Council, among others. (emphasis added)

3.57    We believe that the U.S. government’s concern that the resolution of this issue is a “matter of great importance”, not just to the U.S. biotechnology industry and the legal, scientific and university communities that are associated with it, but to “the national economy, to medical science, and to the public health”. This aspect has been brushed over or minimised in the majority report.

3.58    IP Australia’s policy has, as the evidence presented to both to this committee and to the Senate Community Affairs References Committee shows, negatively and seriously impacted on Australia’s national economy, medical science and public health. It is vitally important that the interest of the entire Australian community be balanced against the interests of one industry sector. This balancing act is critical to the future of this country, its people and cannot be resolved satisfactorily, as the majority report recommends, by ignoring the social and ethical problems it has caused on the basis of an unsubstantiated theory, that patents drive innovation, and the unfounded fear, that without patent protection the Australian biotechnology will ceased to be. Particularly when this policy has over the past 30 years permitted the grant of thousands of patents over naturally occurring biological materials, none of which have been invented, under the guise of untested legal reasoning

3.59    Moreover, as the U.S. government has argued, it is a matter of common sense that the biological materials which this Bill is directed to, are not patentable subject matter. The U.S. government’s reasoning is summarised in the following passage from the Amicus Curiae Brief:

The discovery of any number of basic natural phenomena could be recharacterized as the “invention” of an isolated “manufacture” or “composition of matter” under section 101. For example, many highly reactive elements on the periodic table, such as lithium, occur in nature only in chemical compounds (i.e., salts). Not until 1818 was lithium, which has innumerable industrial applications, first isolated in metallic form by Sir Humphry Davy and W.T. Brande. See Krebs, The History and Use of Our Earth’s Chemical Elements: A Reference Guide 48 (2d ed. 2006). That accomplishment marked a significant achievement in chemistry, but it did not entitle Davy and Brande to claim a patent on the third element in the periodic table. Cf. Funk Brothers, 333 U.S. at 130 (the “qualities of metals” are “part of the storehouse of knowledge of all men”). Courts in the early part of the 20th century repeatedly rejected claims for isolated natural elements as new “manufactures.” See Gen. Electric Co. v. De Forest Radio Co., 28 F.2d 641 (3d Cir. 1928) (pure ductile tungsten, though previously thought impossible to produce, held unpatentable as a product of nature); In re Marden, 47 F.2d 957 (CCPA 1931) (same, pure ductile uranium); In re Marden, 47 F.2d 958 (CCPA 1931) (same, pure ductile vanadium); cf. In re Seaborg, 328 F.2d 996 (CCPA 1964) (upholding patent for element 75, americium, which does not occur in nature). The unacceptable implication of appellants’ argument is that these cases were wrongly decided.

3.60    The U.S. government’s reasoning, once again, fortifies us in our dissent and should be a reminder to the majority that no matter how bleak a picture those opposed to this Bill have painted in terms of the potential negative impact on the biotechnology sector, which we believe is grossly exaggerated, this Parliament should be comforted by the position of the U.S. government on this issue.

Australia’s international obligations

3.61    For the same reasons it is unlikely the U.S. government would have adopted the position it has on the issue, if there was any merit to the argument that its position would contravene either TRIPS or the AUSFTA.

3.62    Prof. Drahos and Dr. Palombi have explained to this Committee, both in submissions and in evidence, that TRIPS and the AUSFTA provide a minimum requirement that patents be granted for what is an ‘invention’ and then only if the invention is novel, involves an inventive step and is industrially applicable.

3.63    It is common sense, for the reasons stated earlier, that biological materials identical or substantially identical to what exists in nature, regardless of their physical state, are not inventions in themselves.

The European Biotechnology Directive

3.64    This Committee was referred the European Parliament’s passage, in 1998, of the European Biotechnology Directive. The Directive mandated E.U. members to amend their patent laws so that an isolated but otherwise identical biological material or those synthesised through a “technical process”, are to be deemed to be patentable subject matter under art. 52.1 of the European Patent Convention.

3.65    While it is a matter for the European Parliament to make laws as it sees fit for the E.U., it is a matter for the Australian Parliament to make laws as it sees fit for Australia, subject to meeting Australia’s international obligations for Australia. We, therefore, are cautious of arguments advanced to this Committee that the Directive is persuasive, or should be, on this Parliament given the U.S. government’s stand on the issue.

3.66    Moreover, it must be appreciated that the Directive mandated a change of law in 1998, amid great controversy that was unresolved until 2006 and 10 years after the decision of the U.K. Court of Appeal in Genentech v Wellcome [1989] RPC 147, in this case the entire patent, granted to Genentech over a synthetic human protein, human tissue plasminogen activator (t-PA) and its process of manufacture, was wholly invalidated.

3.67    The principal product claim of Genentech’s t-PA patent defined the invention to be “recombinant human tissue plasminogen activator essentially free of other protein of human origin”. It was a claim to synthetic t-PA. And it clearly was a claim to both purified and isolated t-PA. Yet the Court held that synthetic T-PA was not something that could be patented under the European Patent Convention (as it was prior to the Directive). And, reinforcing the point, Lord Justice Mustill held that the word “recombinant” did not describe “the product itself, but its history”. In his opinion, to differentiate t-PA produced by recombinant means from naturally occurring t-PA was misleading because it suggested that “[the] protein molecules with the amino acid sequences shown ... and the functional characteristics set out in the [patent] specification” were new,  when in fact they “have existed since far into the distant past”. Neither was he convinced that the technical process used to mass produce purified t-PA resulted in a product that was any different from the t-PA produced by the human body, concluding: “[t]he t-PA which Genentech made [was] neither more nor less than t-PA”.

3.68    The Appellate Committee House of Lords cited Genentech v Wellcome with approval in another biotechnology patent case, Biogen v Medeva [1997] RPC 1. Lord Mustill, as he then was, held as follows:

Certainly, in the great majority of cases, there will be no need to complicate the enquiry by looking outside the four conditions. The traditional law of patents is, however, in the course of adapting itself to new technologies, beyond contemplation when the foundations of that law were established. This process is not without strain, and I believe that in some instances a close conceptual analysis of the nature of patentability will not be a waste of time. Such a case was Genentech Inc's Patent where the claim was for a product already existing in nature, a subject far distant from the mechanical and chemical inventions to which so much of traditional patent law relates. There may well be others in the future. (italics added)

3.69    Again, the Appellate Committee House of Lords in Kirin-Amgen Inc v Hoechst Marion Roussel Ltd [2005] RPC 169 held that a claim to a synthetic human protein, erythropoietin, was invalid because it was not new in that it already existed in the human body.

3.70    In regards to the structure of human protein erythropoietin, a 1989 decision of a U.S. Federal Court makes it unquestionably clear that the identity of the synthetic protein to the natural protein is exactly the same. The Court held:

... the overwhelming evidence, including Amgen’s own admissions, establishes that [natural erythropoietin] and [recombinant erythropoietin] are the same product. The [erythropoietin] gene used to produce [recombinant erythropoietin] is the same [erythropoietin] gene as the human body uses to produce [natural erythropoietin]. The amino acid sequences of human [natural erythropoietin] and [recombinant erythropoietin] are identical. ... There are no known differences between the secondary structure of [recombinant erythropoietin] produced in a Chinese hamster cell and [erythropoietin] produced in a human kidney. Amgen’s own scientists have concluded that by all criteria examined, [recombinant erythropoietin] is the “equivalent to the natural hormone.”

3.71    In other words, the Directive was a legislative enactment of the joint USPTO, EPO and JPO policy – a policy that was not at the time it was formulated in accordance with the European Patent Convention as interpreted and applied by the U.K. Court of Appeal and the Appellate Committee of the House of Lords.

3.72    This suggests to us, absent a similar amendment to the Patents Act, 1990, as effected by the Directive in terms of European patent law, the Bill is consistent with current Australian patent law.

Crown use, compulsory licensing and experimental use – freedom to operate

3.73    Crown Use and Compulsory Licensing provisions have been contained in all three Australian patent legislations since Federation. The origin of the policy for these provisions is to be found in the patent laws of Great Britain – laws that provided the template for the Patents Act, 1903 and the Patents Act, 1952. The legal connection between Australian and British law, however, was severed in 1977 when the British Parliament passed the Patents Act, 1977 (U.K.) as a result of Great Britain joining the European Community in 1973.

3.74    The Patents Act, 1990 therefore represented a break from its legislative predecessors. Nonetheless, the Crown Use and Compulsory Licensing provisions were retained. In regards compulsory licensing the IPAC report stated the following:

The next matter considered is the focus of compulsory licensing provisions in patent law on what are permissible or desirable ways in which a patent may be exploited, and in particular on local manufacture or "working" as against importation. We conclude that the existing provisions should be retained, observing that they take account of both the possible desirability of local working and the fact that local demand may be met satisfactorily by importation. In addition, a compulsory licence ought to be available notwithstanding that the prospective licensee wishes to exercise the licence by importation. The court should have a discretion to order transfer of related know-how as part of the reasonable terms on which a compulsory licence is granted. Compulsory licences should be made a remedy available in actions under the Trade Practices Act.

3.75    However, in 1995 Australia joined the World Trade Organization (WTO). Accordingly, Australia accepted TRIPS and since then has signed and ratified AUSFTA. Both of these international agreements have imposed stringent limitations on the scope of compulsory licensing.

3.76    Prof. Drahos, a recognised world leader on the subject of intellectual property and trade law advised the Committee as follows:

Relying on crown use/compulsory licensing provisions is not a politically feasible strategy. The US has been a great critic of the use of these provisions and has brought trade pressure to bear on countries that have gone down this path (eg Thailand). It is true that China and Brazil have been prepared to confront the US in the WTO over trade disputes concerning intellectual property, but one wonders whether Australian political leaders would be prepared to tread this same confrontational path. By enacting the Bill, Australia would be taking an option that is supported by the US administration. It follows that it would also minimize the risks of a trade confrontation with the US over the patenting of biological materials.

3.77    We are of the opinion that Prof Drahos is correct in his assessment and, accordingly, the possibility that any Australian government will make use of crown use or compulsory licensing to ameliorate the worst effects of these kinds of patents is very low. While we accept that there may be exceptional circumstances where an Australian government may be persuaded to use these provisions, for example, in the event of a pandemic or military hostilities, the historical evidence does not support the majority report’s conclusion that these provisions “can effectively influence patent-holder behavior”.

CONCLUSION

The Australian patent system has operated since 1903. Since that time no Australian government has undertaken a thorough economic assessment of its net effects on the Australian economy. The latest iteration of the patent system, in the form of the Patents Act, 1990, came from a review that was criticised by the only economist on the panel of experts. Despite the concerns that he raised about the lack of any empirical data or analysis, the then Australian government decided to maintain the patent system. Since then there has been an explosion in the growth of intellectual property around the world and since 1995 intellectual property has been included in international trade talks. Throughout this Inquiry the Committee received many submissions about the Australian patent system, how it operates to encourage innovation and how patent protection is seen as vital to medical and scientific research. The problem, however, is that there is no data to substantiate any of these claims or counter-claims.

Regardless, patents are today recognised as a form of property, albeit with a 20 year sunset clause. And as a form of property can be valued, traded and transferred, it follows that they are legal instruments that provide their owners with the power to exclude all others from exploiting the property defined in the patent claims. That said, what can be made the subject of this form of property is limited to something that is an invention. Indeed, it is the act of invention that provides the justification for the grant of a property right.

But since 1988 that justification has been the subject of potential abuse. The patenting of naturally occurring biological materials on the pretext that they are in an artificial state or artificially made has stretched the credibility of the patent system and now poses a threat to its very existence. It is for this reason that this Bill is so important. It seeks to recalibrate the system in one specific way. In doing so it does not address many other issues that hang, unresolved, over the patent system. And it is not meant to. Ultimately whether the patent system continues and on what terms is a matter for decision after a thorough economic assessment has been undertaken and completed. However, until that assessment has occurred, we must work with what we have. Accordingly, to the extent that it is possible for this Parliament to put the Australian patent system back on track it should do so. It is for this reason that we dissent and recommend to the Parliament that it pass the Bill.

Recommendation: The Senate should pass the Bill with the attached amendment.

 

Senator the Hon Bill Heffernan
Liberal Senator for New South Wales

 

Senator Rachel Siewert
Greens Senator for Western Australia

 

Senator Nick Xenophon
Independent Senator for South Australia

Appendix A
Schedule 1— (New) Amendment of the Patents Act 1990

1 Paragraph 18(1)(a)

Repeal the paragraph, substitute:

(a) is a manner of manufacture within the full meaning, including the proviso, of section 6 of the Statute of  Monopolies; and

 2 Paragraph 18(1A)(a)

Repeal the paragraph, substitute:

(a) is a manner of manufacture within the full meaning, including the proviso, of section 6 of the Statute of Monopolies; and

 3 Subsection 18(2)

 Repeal the subsection, substitute:

(2) The following are not patentable inventions:

(a) human beings, and the biological processes for their generation; and

(b) biological materials ,whether isolated or not and however made, which are identical to such materials as they exist in nature.

4 After subsection 18(4)

Insert:

(5) In this section:

biological materials, in section 18, includes DNA, RNA, proteins, cells and fluids and their components.

identical, in section 18, means a biological material which is structurally and functionally identical

 

Appendix B

August 24, 2011

Despite Gene Patent Victory, Myriad Genetics Faces Challenges By ANDREW POLLACK

http://www.nytimes.com/2011/08/25/business/despite-gene-patent-victory-myriad-genetics-faces-challenges.html?pagewanted=all

Myriad Genetics retained its monopoly on a lucrative genetic test for breast cancer risk when a federal appeals court recently upheld the company’s patents on two human genes — and the validity of gene patents in general.

But it is only a matter of time before the company’s business faces severe challenges, some experts say, because that $3,340 test is technologically outmoded, incomplete and too costly.

“Science has moved beyond what these folks do,” said Mary-Claire King, a professor of genome sciences and medicine at the University of Washington. “It’s not good for the science and it’s not good for the patients and their clinicians if they cannot have the most complete, up-to-date information.”

Myriad sequences the two patented genes, known as BRCA1 and BRCA2, for mutations that raise the risk of a woman getting breast and ovarian cancer.

But newer DNA-sequencing techniques are far faster and only a fraction of the cost of the 1990s technology that Myriad uses. Indeed, it will soon be possible to sequence a person’s entire genome, all 22,000 or so genes, for less than Myriad charges for just two genes.

Executives at Myriad say they are preparing for changes. Although its major patents start expiring in 2014, the executives say the company’s patent protection should last until at least 2018.

They say that will give the company time to adopt new technology and to diversify beyond the breast cancer test, which accounted for $353 million, or 88 percent, of Myriad’s $402 million in revenue in the fiscal year that ended in June.

The company also plans to rely less on patents and more on trade secrets. Because it has done so much more testing than anyone else, Myriad has more information on which of the thousands of possible mutations in the two genes actually raise the risk of getting cancer.

Myriad used to share such information with a public database maintained by the National Institutes of Health, and it cooperated with academic scientists trying to analyze the mutations. But a few years ago, the company quietly stopped contributing and cooperating, in favor of building its own database.

An academic consortium, relying on data from European labs or from individual patients, is trying to catch up, but “it’s kind of slow going,” said Sean Tavtigian, a former Myriad scientist who is now an associate professor of oncological sciences at the University of Utah and is involved in the consortium.

Myriad, which is based in Salt Lake City, is hoping to use that advantage first in Europe, where it will open a testing laboratory next year.

“If I had my druthers, I would not want to go into a new market in a heavy-handed fashion, trying to enforce patents,” Peter D. Meldrum, Myriad’s chief executive, told analysts in January. Instead, he said the company would exploit its quicker turnaround time for testing and its “vastly superior information.”

Myriad executives have said that when a European laboratory finds a mutation in either of the two genes, 20 to 40 percent of the time it does not know if the mutation raises the cancer risk. They say that Myriad’s rate of uncertain findings is just 3 percent.

Daniel B. Vorhaus, a New York lawyer and editor of the Genomics Law Report, a Web site, said there were ethical questions about whether Myriad should be withholding the mutation information, important for public health, that it has gathered by dint of its patents to essentially extend its monopoly beyond the life of the patents.

Mark C. Capone, the president of Myriad’s laboratory division, said in an interview that the company had invested heavily in characterizing the various mutations. He said that the company became uncomfortable sharing its information with a public database when it realized the information might be used to compete against it.

Ever since Myriad and its partner, the University of Utah, beat other researchers, including Professor King of the University of Washington, in identifying the BRCA1 gene in 1994, Myriad has been the target of those opposed to the patenting of genes.

In 2009, the American Civil Liberties Union and the Public Patent Foundation filed a lawsuit challenging Myriad’s patents on behalf of various medical researchers, medical societies and patients.

A federal district judge last year said genes could not be patented. But his decision was reversed in late July by a 2-1 decision from the Court of Appeals for the Federal Circuit. The plaintiffs are considering appealing to the Supreme Court.

The lawsuit contends that the patents, by giving Myriad a monopoly, have limited testing options for patients and led to lower-quality tests.

The latest controversy concerns a supplemental test that Myriad is offering.

In 2006, Professor King and colleagues published a paper showing that Myriad’s test, known as the Comprehensive BRACAnalysis, actually failed to detect a significant number of genetic alterations in the two genes.

Myriad then developed a test for these alterations. But instead of incorporating it into its main product, it offered it as a supplemental test at a price of $700. Many insurers do not pay for it, and therefore many women do not get it.

Myriad’s data shows that for Latina women in particular, 20 percent of all mutations found are detectable only by the supplemental test.

“The comprehensive testing they are advertising is not really comprehensive,” said Ellen T. Matloff, director of cancer genetic counseling at Yale, who is also a plaintiff in the patent lawsuit. “This would not happen in a competitive market. It simply would be unacceptable.”

More than 200 doctors, genetic counselors and other health care professionals have signed an open letter to Myriad urging it to incorporate the supplemental testing into the main test.

Kathleen Maxian says that if that had been done earlier, she might not be fighting for her life against ovarian cancer.

Her sister developed breast cancer at age 40 about five years ago, but tested negative for mutations on Myriad’s main test. She was not offered the supplemental test.

Two years ago, Ms. Maxian developed ovarian cancer. It turned out that both she and her sister had genetic alterations that were detectable only by the supplemental test.

“If my sister had had that test and had gotten a positive result, I would have gone to a genetic counselor and have been tested,” said Ms. Maxian, who is 49 and lives in Pendleton, N.Y., near Buffalo. She would then have had the option of having her ovaries removed to avoid getting ovarian cancer.

“I don’t want to see this happen to anyone else,” she said. “Women should have this test.”

Mr. Capone of Myriad said the company kept the test separate because insurers would not pay for it. The company has now compiled the data necessary to arrange for reimbursement and is moving to incorporate that testing into its main product.

He said only 1 percent of women over all would have a mutation detected only by the supplemental test.

The future challenge for Myriad is from new sequencing machines and techniques. Last year, Professor King and colleagues published a paper on a technique that can test BRCA1 and BRCA2, as well as 20 other genes that contribute to breast cancer risk, and at a cost much lower than Myriad’s.

Some companies like Knome already offer sequencing of a person’s full genome. Prices are still high — Illumina, for instance, charges $9,500 — but are dropping rapidly. Others, like GenomeQuest, are developing software tools to analyze the genetic information.

Lawyers say it is not clear if sequencing a person’s whole genome and then providing information on mutations in the BRCA genes would violate Myriad’s patents on the isolated genes.

Mr. Capone said that full genome sequencing did not yet meet the requirements for accuracy required of a medical diagnostic test. And the reported cost of sequencing a human genome does not include the significant cost of analyzing the data.

“It will probably take four years or more before whole genome sequencing can be done clinically,” Mr. Capone said. By then, Myriad will have developed its test using new sequencers that will judge the risk of all hereditary cancers, not just hereditary breast and ovarian cancers.

Many analysts like the stock, though Isaac Ro of Goldman Sachs rates it a sell, saying the price of the breast-cancer risk test is unsustainable.

For now, sales of the breast cancer risk test continue to grow, rising 10 percent in the last fiscal year. Mr. Capone said that many women who were eligible for testing under medical guidelines were still not getting tested, leaving a large untapped market.

Myriad is also trying to diversify. It sells seven other tests, including one for the risk of inherited colon cancer and one that helps guide prostate cancer treatment by gauging a tumor’s aggressiveness.

It has at least 13 other tests in development and is moving into so-called companion diagnostics, which are tests to show whether a particular drug is appropriate for a particular patient.

But so far, the other tests pale beside the one for breast cancer. Professor Tavtigian said Myriad insiders refer to the company’s product portfolio as Snow White and the Seven Dwarfs. END

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