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Should all or any of the research done to identify and test drug candidates for potential clinical trials be exempt from patent infringement under 35 U.S.C. �271(e)(1)? The Supreme Court has granted a writ of certiorari to review a decision by the Federal Circuit in Integra v. Merck on the scope of the FDA exemption. Docket No. 03-1237 (cert. granted Jan. 7, 2005). In Integra, the Federal Circuit held that the FDA exemption from patent infringement is not applicable to preclinical trial experiments — only to the clinical trials themselves. Merck argues that the Federal Circuit’s interpretation of the exemption is too narrow and that preclinical trials should also be exempted because they are part of the FDA approval procedure. The issue is significant to the drug and biotechnology industries. The government and Wyeth filed amicus curiae briefs urging a reversal of the decision. In addition, Eli Lilly has obtained the Court’s permission to file an amicus brief. If the Supreme Court reverses and holds that the preclinical trial experiments are within the FDA exemption, “tool patents” (i.e., patents on inventions that help to identify drug candidates) will become worthless because drug companies using such “tool patents” will be able to practice them without paying royalties. If, on the other hand, the Supreme Court affirms the Federal Circuit decision, drug companies using “tool patents” will have to pay royalties or refrain from practicing such patents. According to the briefs filed by Merck and the amici, affirmance of the Federal Circuit’s decision will have a devastating impact on the research for drug candidates. The outcome of the case hinges on the interpretation of 35 U.S.C. �271(e)(1) of the patent statute — the “FDA exemption.” This section of the statute provides that making, using, offering to sell, selling or importing a patented invention is not an infringement if such activities are performed “solely for uses reasonably related to the development and submission of information under a Federal Law.” Id. The “FDA exemption” was enacted by Congress as part of the 1984 act which sought to eliminate unfair distortions at both ends of the patent period. Eli Lilly & Co. v. Medtronic, Inc., 496 U.S. 661, 670 (1990). At the beginning of the patent term, a patentee for an invention which had to be approved by the FDA before it could be commercialized was often delayed in deriving benefits from the patent. Upon expiration of the patent, a competitor’s entry into the market was delayed because it could not start the research necessary for FDA approval until the patent expired. To remedy the front-end distortion, Congress established a patent-term extension for patents relating to products subject to premarketing regulatory delays. To remedy the back-end distortion, Congress enacted the “FDA exemption” to give competitors immunity from patent infringement for “activities necessary to obtain regulatory approval” carried out prior to the expiration of the patent. Eli Lilly, 496 U.S. at 671. Integra owns patents directed to the RGD peptide sequence. Merck entered into a development agreement with the Scripps clinic to identify potential drug candidates using the RGD peptide sequence patented by Integra. The experiments conducted by Scripps scientists in connection with the Merck agreement produced several candidates for potential clinical trials. Since Scripps’ experiments used the patented RGD peptides and were for commercial rather than scientific purposes, Integra offered a license to Merck under its RGD peptide patents. When Merck refused to take the license, Integra sued Merck for patent infringement. The issue submitted to the jury was whether the Scripps’ research activities carried out on behalf of Merck were “solely reasonably related” to obtaining the FDA approval. The jury found patent infringement and rejected Merck’s argument that it had an exemption under 271(e)(1). The district court denied Merck’s post-trial motion to overturn the jury’s determination that the FDA exemption did not apply. The U.S. Court of Appeals for the Federal Circuit affirmed. The majority opinion, written by Judge Randall Ray Rader, held that the preclinical trial experiments conducted by Scripps for Merck were not exempt because these experiments were not done solely to supply information to the FDA — and therefore, not “solely for uses reasonably related” to clinical tests for the FDA. Judge Pauline Newman dissented, opining that the basic research conducted by Scripps is exempt under the common law experimental use exemption and that anything beyond basic research is exempt under the FDA exemption. How should the Supreme Court construe the FDA exemption? At the outset, the Supreme Court should not be persuaded by the equities argued by Merck. Merck’s opening brief painted a melodramatic picture of patients dying of diseases that could have been prevented if the drug companies could develop their products without waiting for the expiration of patents that cover its research activities. Merck argued that by not permitting drug companies to conduct research without worrying about existing patents, the Federal Circuit has transformed the United States into “hostile territory for drug innovation.” Merck’s argument overlooks the fact that Integra offered to license its patents to Merck and that most, if not all, “tool patents” are available for licensing. The conjecture that a company may not license its tool patents and therefore thwart progress of research is not credible. Indeed, the equities favor Integra’s position since allowing tool patents promotes the development of tool inventions, which in turn, facilitates discoveries of new drugs. When construing the language of the “FDA exemption,” as in Lilly, the Supreme Court should consider the overall scheme of the statute and then construe the disputed provisions to give the best effect to the overall intent. Eli Lilly, 496 U.S. at 665-69. Congress permitted use of a patented invention to allow a competitor to get the necessary federal approval of the competitor’s product so that the competitor could start marketing the product immediately upon expiration of the patent. The legislative history confirms that Congress intended that the exemption have de minimus effect on existing patent rights. H.R. Rep. No. 98-857, pt. 2, at 8, 30 (1984) reprinted in 1984 U.S.C.C.A.N. 2692, 2714. Merck’s argument is that the exemption immunizes its activities even prior to the identification of the product for which approval was eventually sought. The problem with Merck’s argument is that this construction of the statute would allow drug companies to use “tool patents” without paying for their use. There are an estimated 8,000 to 10,000 “tool patents” which are directed to expediting or facilitating drug research. Since the only value of “tool patents” is to facilitate drug research, the construction proposed by Merck would render them useless. Thus, the Merck construction is contrary to the overall intent of the statute in that such construction would have a devastating effect on the value of thousands of patents, rather than the de minimus effect contemplated by Congress. Integra’s argument that the statute immunizes experiments conducted solely to obtain approval of the product is consistent with the overall intent of the statute and with the specific wording of the statute. This construction has a de minimus effect on a patentee’s rights. This construction also gives full effect to the term “solely” in the phrase “solely reasonably related … ” because it indicates that the only purpose of the exempted use is to collect data for the FDA approval. Allowing research for drug candidates, which has the additional purpose of identifying and testing drug candidates for potential clinical trials, would not be consistent with the language of the statute. An extension of the FDA exemption to all drug research would have a disastrous long-term effect on drug research activities. If biotech and other companies, which are in business to develop tools for identifying drug candidates, are not able to enforce patents for their “tool” inventions, they are less likely to attract investment and develop tools that are critical to drug research. To the extent that funding is obtained, the research on “tool” inventions is likely to be shrouded in secrecy and made available to drug companies only under secrecy agreements. Therefore, the construction of the statute advocated by Merck and the amici would be contrary to Congressional intent in that it would turn issued “tool patents” into “useless things,” while Congress intended that FDA exemption to have a de minimus effect on patent rights. In short, both the equities and the law favor the construction of the FDA exemption argued by Integra and adopted by the Federal Circuit. Steve Szczepanski is a partner in the Chicago office of Kelley Drye & Warren.

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