Preemptive patenting, human genomics, and the US biotechnology sector: balancing intellectual property rights with societal welfare

Technology in Society 25 (2003) 337–349www.elsevier.com/locate/techsoc

Preemptive patenting, human genomics, and theUS biotechnology sector: balancing intellectual

property rights with societal welfare

Thomas A. Hemphill∗

Department of Strategic Management and Public Policy, School of Business and Public Management,The George Washington University, Monroe 203, 710 21st Street, NW, Washington, DC 20052, USA

Abstract

Within the biotechnology sector of the US economy, aggressive patenting, i.e. preemptivepatenting, of human genomic research results are practiced by private-sector firms, the aca-demic community, and non-profit organizations. Preemptive patenting has traditionally beenpracticed by the private sector as a competitive strategy, being driven by economic consider-ations. Recently, academics and patients/consumers have instituted preemptive patenting stra-tegies as a way of ensuring access to genomic sequences for, respectively, research studypurposes and life-enhancing access to diagnostic gene testing. To reduce this non-economicmotivation for preemptive patenting by these nontraditional competitors, it is recommendedthat the biotechnology industry initiate a strategy of its own which will: (1) relax firm patentenforcement of genomic sequences that are essential for academic researchers to use in theirstudies; and (2) provide for a ‘means-test’ approach that incorporates a ‘staggered’ fee-sched-ule for academic researchers to charge their subjects, i.e. patients, for gene tests and diagnos-tic results. 2003 Elsevier Ltd. All rights reserved.

Keywords: Biotechnology; Competitive advantage; Competitive strategy; Intellectual property; Preemptivepatenting; Sleeping patents

∗ Tel.: 202-994-6677.E-mail address: [email protected] (T.A. Hemphill).

0160-791X/$ - see front matter 2003 Elsevier Ltd. All rights reserved.doi:10.1016/S0160-791X(03)00050-2

338 T.A. Hemphill / Technology in Society 25 (2003) 337–349

1. Introduction

Biotechnology is defined as “ the use of the cellular and molecular processes tosolve problems or make products” [1]. Broadly speaking, this definition includesfirms or organizations that employ cells and biological molecules for applications inmedicine, agriculture, and environmental management [2]. Often cited as the genesisof the biotechnology industry, the 1980 United States (US) Supreme Court decisionDiamond v. Chakrabarty held that “anything under the sun that is made by the handof man” was eligible subject matter for patenting.1 In this particular case, Dr. AnandaChakrabarty’s invention of new microorganisms (‘genetically engineered bacterium’ )which do not exist in nature were deemed a new “ invention” and therefore patentable.

Over the last two decades, the biotechnology sector of the US economy has flour-ished with hundreds of new biotechnology drugs, vaccines, medical diagnostic tests,foods, and environmental-related products entering the marketplace.2 By 2001, therewere 1379 US biotechnology companies employing 174,000, of which 339 firms arepublicly held. Financially, revenues for the biotechnology industry have increasedby over 300%, from $8 billion in 1992 to $25 billion in 2000. Biotechnology is alsoone of the most research-intensive industries, with US companies having spent $13.8billion on research and development (R&D) in 2000. To place this industry expendi-ture in perspective, the top five biotechnology companies spent an average of $89,400per employee on R&D in 1999, compared to an average of $37,200 per employeespent by the leading pharmaceutical companies the same year.

Within the medical subfield of biotechnology, human gene (or genomic) researchhas been in the forefront of a decade-long national effort called the Human GenomeProject (HGP) begun in 1990 and jointly funded by the US Department of Energyand the National Institutes of Health. A gene is the fundamental physical and func-tional unit of heredity and consists of tightly coiled threads or polymers of deoxyri-bonucleic acid (DNA). In contrast, a genome is the complete set of genetic instruc-tions carried within a cell or an organism. An international research program, HGPis designed to construct detailed genetic and physical “maps” of the human genometo determine the sequence of 3 billion chemical bases (i.e. nucleotides) in humanDNA, to localize the estimated 50,000–100,000 genes within the human genome(although more recent estimates are closer to 40,000 [4]), and to perform similaranalyses on the genomes of several organisms used extensively in research labora-tories as model systems [5]. The discovery of new genes is anticipated to provideinvaluable tools for improving disease prediction, diagnosis, and treatment. Alongwith Celera Genomics, a private corporation, HGP announced a completed workingdraft of the human genome on June 26, 2000.

Genomic research in the private sector, while sharing many of the same goals asthe publicly funded HGP, further seeks to use this genetic map to commercially

1 See Diamond v. Chakrabarty, 447 US 303 (1980).2 This section on industry financial and market statistics draws on information provided by the Biotech-

nology Industry Organization [3].

339T.A. Hemphill / Technology in Society 25 (2003) 337–349

develop therapeutically useful compounds and disease treatment strategies. As in anyscientific and technology-based industry, the ability to protect one’s invention fromimitation is of paramount importance to the biotechnology industry. To that end, theUS biotechnology industry has been a strong supporter of intellectual property rights(patents) as pertains to its ‘ inventions.’ This aggressive protection of patent rightsby the private sector has resulted in controversy over the applicability of patentprotection to genomic invention, specifically as to how such legal protection impedesbroader social benefits. For example, as will be discussed in greater detail later inthis article, aggressive patent enforcement by biotechnology firms has resulted in theincreasing use of ‘preemptive patenting’ by academic and non-profit organizationsto ensure that new discoveries have increased accessibility and utility in the scientificand medical research communities. The protection of intellectual property rights inthe biotechnology industry, while vigilant, must not be accomplished at the expenseof the general welfare of society. This cost–benefit analysis to find the right balancebetween private and public interests requires the biotechnology industry to take thelead in creating an industry strategy that both supports patent protection and royaltieswhile simultaneously confronting the real distributive concerns of other stakeholders(medical researchers and patient/consumers of diagnostic tests) in society. A sug-gested biotechnology industry approach will be offered in the conclusion of the arti-cle. But before proceeding directly to addressing the controversies surrounding pre-emptive patenting in genomic research, it will be helpful to place this concept inperspective by offering an overview of the US patent system and its importance tothe development of the nation’s biotechnology industry.

2. Intellectual property and the role of patents

Intellectual property “ is a broad term that is used to describe the wide range ofrights that are conferred by the legal system in relation to discrete items of infor-mation that have resulted from some form of human intellectual activity” [6]. In theUS, intellectual property is protected through a number of special laws and publicpolicies, and is categorized under patents, copyrights, trademarks, and trade secrets.3

For the purpose of this article, the focus will be exclusively on patent protection ofintellectual property.

The Constitution of the United States gives Congress the power to enact lawsrelating to patents, in Article I, Section 8, which reads “Congress shall have power... to promote the progress of science and useful arts, by securing for limited timesto authors and inventors the exclusive rights to their respective writings and discover-ies.” Exercising its authority, the US Congress enacted the first patent law in 1790.A patent for an invention is the grant of a property right to the inventor, issued bythe US Patent and Trademark Office (USPTO). Generally, the term of a new patentis 20 years from the date on which the application was filed in the US or, in special

3 This section draws heavily from [7].


cases, from the date an earlier related application was filed, subject to the paymentof maintenance fees. Under certain circumstances, patent term extensions or adjust-ments may be available. US patent rights are only effective on US territories. Toobtain a patent, the applicant must prove that the invention is useful, novel, and non-obvious, and provide a working model to the USPTO.

The patent laws of other countries differ in various respects from the patent lawof the US. For example, in most countries, publication of the invention before thedate of the application will bar the right to a patent. Most foreign countries requirethat the patented invention must be manufactured in that country after a prescribedperiod of time, usually 3 years. If there is no manufacture within this period, thepatent may be void in some countries, although in most countries the patent may besubject to the grant of compulsory licenses to any person who may apply for alicense. Under the Paris Convention for the Protection of Industrial Property, some140 countries, including the US, guarantee to the citizens of the other countries thesame rights in patents and trademarks that it gives to its own citizens.

The right conferred by the patent grant is, in the language of the statute and ofthe grant itself, “ the right to exclude others from making, using, offering for sale,or selling” the invention in the US or “ importing” the invention into the US. Whatis granted is not the right to make, use, offer for sale, sell, or import, but the rightto exclude others from making, using, offering for sale, selling, or importing theinvention. Once a patent is issued, the patent holder must enforce the patent withoutaid of the USPTO. There are three types of patents: utility patents, granted to anyonewho invents or discovers any new and useful process, machine, article of manufac-ture, or compositions of matters, or any new useful improvement thereof; designpatents, granted to anyone who invents a new, original, and ornamental design foran article of manufacture; and plant patents, granted to anyone who invents or dis-covers and asexually reproduces any distinct and new variety of plants.

Traditionally, the role of intellectual property in American society has involveda balancing act. On one hand, the notion of justice and equity is advanced on behalfof all humanity benefiting from the collective, social processes through which newscientific and technological ideas arise. Contrarily, this notion is balanced againstthe ‘natural rights’ of inventors and authors to the fruits of their creative efforts. Morerecently, the societal emphasis has been on the statutes, legal rulings, administrativeregulations, and other institutional arrangements affecting patents, copyrights, andtrade secrets—all widely regarded as public policy instruments that should bedesigned to enhance economic welfare by stimulating technological progress [8].Thus, not surprisingly, this recent emphasis on economic welfare and technologicalprogress utilizes microeconomic analysis in discussing intellectual property rights,including the issues of allocative efficiency and, from the viewpoint of society, distri-bution [8]. This means that the policy objective is to maximize the new informationassets (patents) over the social costs of their production, i.e. to maximize the ‘netsocial benefits’ [8].

The role of patents in encouraging economic growth through technological inno-vation is multifaceted [9]. Firstly, patent rights encourage the research and develop-ment (R&D) efforts necessary for new product and process development by allowing


for the recouping of the initial costs of innovation [10]. Secondly, a patent can createmarket power that allows for above-normal profits, thus encouraging competition tobe the first to invent a new product or process. (Because a product is patented doesnot guarantee that a product can be sold at above-normal price; a patented productmay face competition from other products [11].) Thirdly, patents, by encouraginginventors to disclose their new knowledge in exchange for protection from imitators(‘ free riders’ ), increases the overall pace of innovation by enabling inventors to buildon each other’s work [12]. As is generally recognized, direct imitation of new inven-tions (without patent protection) discourages further R&D.

3. The biotechnology industry and patent protection

According to statistics developed by the Biotechnology Industry Organization, aUS-based non-profit association, the impact of the biotechnology industry on medi-cine and public health has resulted in more than 250 million people globally havingbeen helped by more than 130 biotechnology drug products and vaccines approvedby the US Food and Drug Administration (FDA).4 Of these biotechnology-baseddrugs now being marketed, the FDA approved some 70% in the last 6 years. Further-more, there are more than 350 biotechnology drug products and vaccines currentlyin clinical trials targeting more than 200 diseases, including various cancers, Alzhei-mer’s disease, heart disease, diabetes, multiple sclerosis, AIDS, and arthritis.Biotechnology is also responsible for hundreds of medical diagnostic tests that keepthe blood supply safe from the AIDS virus and detect other conditions early enoughto be successfully treated.

These impressive industry statistics are not generated without significant up-frontR&D expenses. Developing innovative drugs, vaccines, and disease testing protocolsis a risky, time-consuming, and expensive process [12]. William A. Haseltine, chair-man and chief executive officer of Human Genome Sciences, Inc. succinctly explainsthe need for a strong government policy supporting patent protection for the biotech-nology industry:

If biopharmaceuticals are to be a vibrant business sector—and a rich source ofbetter medicines—continued strong patent protection is essential. Companies thatspend hundreds of millions of dollars to develop a medicine need the assuranceof a patent that the drug will not quickly be copied. Indeed, the feature of strongpatentability further distinguishes human genes, proteins, and antibodies fromsmall-molecule drugs, which are relatively easy to mimic in “me-to” versionsdifferent enough to avoid infringing a patent and thus able to steal market share,slashing returns on the original developer’s investment [13].

4 Industry statistics on the impact of discoveries on improvements in medical diagnostics and treatmentdescribed in this section is drawn from Biotechnology Industry Organization [3].


The USPTO has issued a total of 2330 patents covering gene sequences throughthe end of 1999, with the US government holding the largest number of 388 patents[12]. By nationality, US inventors predominate as recipients of US patents in biotech-nology, followed by Japan, the United Kingdom, and Germany [12]. More recently,there have been a staggering number of genomic patents filed with the USPTO. Forthe fiscal year ending September 2000, approximately 20,000 biotechnology patentapplications were filed with the USPTO [5]. While the USPTO has an overall patentapproval rate of 70%, for biotechnology-related patents this approval rate drops to40% [5]. Under this USPTO approval-rating scenario, the final results could be anadditional 8000 genomic patents. With the announcement of the working draft ofthe HGP in June 2000, this milestone initiated a tidal wave of patent applicationactivity. Obviously, biotechnology firms such as Incyte, Celera, Genomics and otherssee a potential profit windfall in licensing to drugmakers patented genomic sequencesand the proteins they produce.

While obtaining a patent is an important competitive strategy for biotechnologycompanies, enforcing the patent is of equal importance. While historically, theUSPTO has required detailed descriptions of the functional utility of an invention,this has generally not been the case for genomic research. To some degree theUSPTO has relaxed its standards for utility in the field of genomic research andallowed more general descriptions of any findings in patent approvals [14]. Thedeficiency in this approval approach may be found when firms defend their patentsagainst competitors infringing upon their patent rights. If these patents do not providethe level of detail needed to make the patent enforceable, the acquisition of the patentwill have been for naught. Thus, it is not the volume of patents a company is ableto secure that is important but the value of those patents when they are challengedin the marketplace. Yet, according to Arthur Wellman, an attorney with an extensivebackground in the biotechnology sector employed by Higgs, Fletcher and Mack, aSan Diego law firm

… because the competition is so fierce, scientists want to protect their findingseven before they know the precise function of a particular sequence, the proteinit might produce, or what it might produce, or what role it might play in improvinghealth. Beyond the initial discovery lies a great deal more research into how thesequence can be manipulated or modulated to create novel treatments and ther-apies [14].

On January 5, 2001, the USPTO adopted final guidelines for determining the utilityof gene-related inventions. The guidelines emphasize that “where the applicationdiscloses a specific, substantial, and credible utility for the claimed isolated andpurified gene, the isolated and purified gene composition may be patentable” [15].This policy clarification is anticipated to address some of the aforementioned ‘utility’concerns, reduce the absolute number of patent applications submitted for patentapproval, and improve legal protection for those genomic patents now approvedwhen infringed by competitors.


4. Patents and sustaining competitive advantage

4.1. Competitive strategy, patent thickets, and sleeping patents

Competitive strategy focuses on improving the competitive position of a productor service within a specific industry or business market segment [16]. Within itsindustry, the acquisition of patent protection can be an integral component of a firm’scompetitive strategy. Of the competitive tactics employed by firms, the acquisitionof patent protection is classified as a ‘defensive tactic’ . According to Porter [17],the use of defensive tactics by a firm does not enhance its competitive advantagebut sustains it by precluding a challenger from entering the market. In the case ofa patent, this form of legal protection raises structural barriers to a competitor byforeclosing alternative technologies to compete with products presently in the mar-ketplace.

However, because patents make a firm’s capabilities explicit and tangible, patent-ing can, in many circumstances, actually reduce the ability of firms to sustain com-petitive advantage [18]. There is strong evidence that competitors ‘ invent around’patents or copy these innovations in other ways. Levin et al. [19] found that in asurvey of 650 R&D managers in a cross-section of businesses believed that patentswere the least important means of securing competitive advantages for new processesand better than only ‘secrecy’ for products. Mansfield [20] studied firms in 12 indus-tries and concluded that only 14% of their innovations would not have beendeveloped without patent protection. Mansfield et al. [21] also found that 60% ofall the patents issued in the US each year are imitated within 4 years of beingissued—without violating legal patent rights of innovators—and that the cost of imit-ating another firm’s patents was only 65% of the cost of the original innovation.

Nevertheless, research results of studies conducted by Mansfield [22] and Levinet al. [19] have found that patents do raise the costs of imitating innovations andlengthen the time it takes to bring an imitation to market, especially for ‘major’inventions. Furthermore, Levin [23] has found that patents do fulfill their role ofproviding sustained competitive advantage in two industries—specialty chemicalsand pharmaceuticals. In these two industries, small changes in product attributes canlead to large changes in product performance (thus, competing firms are unable tointroduce similar products that do not, in fact, violate these patents) [23]. To forestallimitative activity and strengthen patent rights, firms often attempt to create a ‘patentthicket,’ i.e. obtaining patents not just on one central product or process, but on ahost of related products or processes [11]. Firms that try to compete with theinventing firm will find their attempts to duplicate the central product or processblocked by the inventing firm’s grip on alternative technologies. Many of the firm’spatents on related products or processes may never be used or licensed; such ‘sleep-ing patents’ are held only to raise the costs of entry or imitation by potential rivals.

According to Beard and Kaserman [24], one mechanism employed by firms toameliorate the negative impact of patent thickets is the patent licensing/cross-licens-ing system. Under a cross-licensing system, firms operating in industries charac-terized by patent thickets are able to negotiate extensive cross-licensing agreements


(involving, for example, a lump-sum, up-front payment or of long-term duration)with other patent-holders, sometimes on a royalty-free basis. These cross-licensingagreements provide the contracting partner a license or an agreement not to sue forinfringement of the patents that it holds, or even patents that it receives in futureperiods. The principal feature of these cross-licensing agreements is that they tendto reduce the patent uncertainty of firms investing in R&D activities.

4.2. Preemptive patenting, maintenance fees, and compulsory licensing

The creation of a patent thicket of sleeping patents by an incumbent firm withmonopoly power is a strategy referred to as ‘preemptive patenting.’ And, as notedby Shapiro [25], given cumulative innovation and multiple blocking patents, strongerpatent rights can have the perverse effect of stifling, not encouraging, innovation.According to Gilbert and Newbery [26], such a firm has an incentive to maintainits monopoly power by patenting new technologies before potential competitors. Themonopoly firm will preempt if the cost is less than the profits gained by preventingentry, which follows whenever entry brings about an anticipated reduction of totalindustry profits below the monopoly level. However, suppression of superior inven-tions is not rational competitive strategy, since such inventions reduce a monopolist’scosts of providing consumers with a given level of service, therefore profits will bemaximized by introducing rather than suppressing inventions [27]. Yet, it may beargued that suppression of even inferior patents damages consumer welfare. Accord-ingly, many countries require maintenance fees and compulsory licensing of unusedpatents to ‘ thin’ the patent thicket.

In the US, maintenance fees on a utility patent (which is granted to eligible gen-omic research) must be paid to maintain the patent in force. These maintenance feesare due 3.5, 7.5, and 11.5 years from the date the patent is granted [7]. Failure topay the current maintenance fee in a timely fashion (which includes a 6-month graceperiod with a surcharge) can result in the expiration of the patent [7]. In contrast,many European countries’ patent holders must pay an annual renewal fee to maintaintheir monopoly rights under the patent. A firm only renews a patent if the expectedreturns to one more year of exclusive rights exceed the cost of renewing. Forexample, in Germany renewal fees are relatively low the first year renewal is required(year four), but accelerate rapidly in later years [11]. Pakes [28], in his review ofpatent maintenance renewals in France and Germany, found that most patents havevery low initial value. Furthermore, many European patent holders do not find a usefor their patents within the first few years, and decide not to renew their patents.

As mentioned earlier, a US patent provides an inventor the monopoly rights to apractical application of an idea for 20 years. While retaining these rights, the patentholder may manufacture or license, i.e. permit, another firm to produce a productbased on the patent for a royalty, i.e. fee. Licensing a patent is a standard methodfor firms to recoup their R&D investment. While the practice of licensing is generallyfollowed, many countries require compulsory licensing of an invention at ‘ reasonableterms’ if the patent holder does not utilize the invention within a specified periodof time [11]. Thus, many countries, to prevent sleeping patents from proliferating,


use compulsory licensing; the US, however, is not one of these countries. Yet it maybe a savvy firm strategy to exploit even inferior sleeping patents if the holder of thesuperior patent is charging a monopoly price for the associated product or amassinginferior patents to help sustain a competitive advantage [9,25].5

4.3. Sleeping patents and the biotechnology sector

Over the last decade, the biotechnology sector, which include private, non-profit,and public entities, has been successful in broadening the scope and subject matterfor patents. Until recently, the USPTO has been ‘ loose’ in its requirements for thedisclosure of utility needed to be awarded a patent for genetic invention. Thisapproach, emphasizing the potential for an innovation to be patent protected, hasbeen championed by those claiming that the nature of this industry makes it essentialto patent discoveries before their full significance is known [14]. Robert Millman,director of intellectual property for Celera Genomics, acknowledges that the USPTOfaces intense pressure to limit the scope of gene patents. “The world is worried thatpatent monopolies will be granted on genes with little proof (of their utility),” henotes [4]. These sleeping patents offer great potential value as pharmaceutical firmsbegin to design personalized drugs based on genomic sequences [4]. Pharmaceuticalcompanies face the costly prospect of paying biotechnology firms such as Genset orMillennium to license specific genomic sequences and proteins needed to developgenetically targeted medicine [4]. Many of these biotechnology companies plan ondeveloping their own drugs from these patents [4].

In response to this biotechnology industry induced patent thicket, the United King-dom’s Welcome Trust, the world’s leading medical research charity, and ten of theworld’s largest major pharmaceutical firms and research laboratories formed the non-profit SNP Consortium Ltd. in 1999 to search for minute genetic differences callednucleotide polymorphisms.6 The Consortium’s formation has led to work being morequickly accomplished, the sharing of financial risk, and a reduction in duplicationof research efforts. This $45 million, 2-year industry alliance is an example of a ‘pre-competitive’ collaboration among pharmaceutical companies. The most importantobjectives of the Consortium included: identifying specific genes involved in com-mon and rare diseases, allowing the discovery of new therapies and medicines;developing new diagnostic tests; and creating ‘personalized’ medicines from knowl-edge of tiny genetic variations that predict an individual’s response to therapy. InFebruary 2001, the SNP Consortium placed a 1.42 million single nucleotide polymor-phism (SNP) gene map in the public domain on the Internet. By openly publicizingSNPs (which can be used as drug targets), the pharmaceutical industry hopes tomake it far more difficult for biotechnology firms to patent those sequences [4].

The academic biotechnology research community is faced with other commercial

5 Shapiro notes recent research showing that companies are increasing the practice of ‘defense paten-ting,’ i.e. preemptive patenting. See [29–31].

6 Information for this section drawn from SNP Ltd. at http://www.snp.cshl.org, July 2, 2002.

http://www.snp.cshl.org


patent protection issues. For example, Myriad Genetics, a Utah biotechnology com-pany, collaborated with the National Institutes of Health on researching the genesBRCA1 and BRCA2, which are linked to families with high rates of breast andovarian cancer [32]. Myriad Genetics patented both the BRCA1 and BRCA2 gen-omic sequence and has been zealous in protecting patent rights to both genomicsequences, including a patent dispute in 1997 with Oncormed, another biotechnologycompany, which also received a patent on BRCA1 [4]. The case eventually settledwith Myriad retaining exclusive rights to the diagnostic test for BRCA1. Accord-ingly, many researchers have expressed concern that Myriad’s patents interfere withtheir human genetic research [32]. For example, at the Yale University School ofMedicine, Dr. Allen Bale, a human genetics researcher, explains that gene patentssuch as Myriad’s “have a chilling effect on the work we do. There are things whichI won’ t even think about doing anymore, because I don’ t want to get involved inpatent issues” [32]. Though according to a Myriad Genetics, licensed researchers arepermitted to sequence BRCA2 “provided that no fee is charged for such tests” and“no direct clinical use shall be made of any research test results” [32]. Yet Myriaddefines what is commercial and violates their patents. According to a Myriad Gen-etics spokesperson, “ If you give test results back to patients, it crosses the line, andit’s no longer a simple research test” [32]. Myriad insists that the company promotesresearch by making its genetic test available to all and by slashing the genetic testfee in 2000 for academic researchers doing NIH-funded research (for example, nowNIH researchers pay $1200 for a test that costs patients $2680) [32].

For geneticists like Bale, it is difficult to enlist patients for blind studies in whichtest results are not disclosed to test participants. Even if patients can be recruitedthat way, a study might be biased if the most desirable subjects are discouragedfrom taking part, e.g., women in families with a high incidence of breast cancer[32]. Since genes are now considered “property,” Bale and his collaborators on arecent skin cancer discovery have no choice but to seek patent protection [32]. Buttheir motivation is not based on the profit motive; their patent will be purely fordefensive purposes, i.e. to preempt a company from patenting the gene and profitingfrom their discovery [32]. Consequently, this preemptive patent will allow theresearchers the freedom to perform their own sequencing techniques (rather than thatrequired by the patent holding company), and not be required to charge researchparticipants fees to receive their test results. Genetic cancer patients are also con-cerned about biotechnology company restrictive licensing agreements that can makegenetic tests too costly [4]. In some instances, those individuals who have familieswith genetic diseases or strong proclivities have also engaged in preemptive patentingto keep these tests affordable and accessible. In one instance, individual patent rightswere assigned to a foundation established by a group of PXE (a connective tissuedisease) patients [4].

5. Conclusion

The patent system has provided a limited protection for inventors to recoup thefinancial remuneration that is necessary to encourage further innovation by individ-


uals and companies. Economists, such as Mansfield et al. [21], have uncovered evi-dence that the majority of patents (60%) are imitated within 4 years, providing atruncated period to recoup investment. However, Levin [23] has found empiricalevidence that patent protection provides sustained competitive advantage in twoindustries (specialty chemicals and pharmaceuticals) sharing similar (‘structural’ )patent protection characteristics with that found in the biotechnology industry. Therecently adopted USPTO guidelines for determining the utility of gene-related inven-tions will offer increased sustained competitive advantage for the biotechnologyindustry. Contrarily, this emphasis on a strict utility requirement for granting genomicpatent clashes with the desires of many scientists to protect their findings based onthe potential function or utility of a particular genomic sequence. Nevertheless, thisUSPTO clarification regarding gene-related inventions only strengthens the purposeof the patent system—that is, to provide patent holders the ability to prevent infringe-ment by competitors, recoup their investment by sustaining competitive advantage,and encourage further innovation in the biotechnology sector. Yet the US biotechnol-ogy industry may be faced with further international assaults on its patents. It isbeing reported that the Cuban government (whose pharmaceutical and biotechnologyindustry consists of more than 20 research and production centers [33]) intends toimitate and sell the patented genomic sequences to countries not recognizing theParis Convention for the Protection of Industrial Property, thus allowing for themanufacture and sale of ‘black market’ pharmaceuticals and genomic diagnostictests.

As a traditional competitive strategy, preemptive patenting has been employed byfirms to maintain their monopoly power by patenting new technologies before poten-tial competitors, regardless of whether they intend to bring the invention to market.While US biotechnology firms continue to be criticized for their zealous patentenforcement and adverse impact on consumer welfare, the academic and consumernon-profit competitive response to biotechnology firms’ behavior does not warrantthe same criticism. The advent of an aggressive, preemptive patenting strategy bythe biotechnology industry has resulted in an expanded role for preemptive patentingin the academic community. Unlike the traditional economic (profit) motivation driv-ing biotechnology firms, the academic community (located in private and public non-profit organizations) is motivated to acquire preemptive patents for a dual purpose:first, to allow unhindered scientific access to, and experimental manipulation of, gen-omic sequences, and second, to enhance the ability of researchers to include a widevariety of test subjects in their studies. Also, cancer patients are establishing non-profit foundations where the patent rights of genomic inventions are being assigned,thus allowing patients low-cost access to genetic diagnostic tests. Furthermore, thepharmaceutical industry has adopted a competitive variation on preemptive patenting.Instead of acquiring patents, the pharmaceutical industry pooled financial resourcesto form the SNP consortium whose purpose is to preempt the biotechnology industryfrom acquiring patents by disclosing genomic sequences into the public domain.Thus, the working definition of preemptive patenting has now been expanded toinclude both economic and non-economic motivations, and is being championed by


academic, industry, and consumer non-profit organizations—formerly customers(vis-a-vis licensing) of the biotechnology industry.

What defensive strategies can biotechnology firms implement to counter the pre-emptive patenting efforts now undertaken by the academic and consumer stake-holders? To begin with, the biotechnology patent controversies can best be addressedfrom an industry perspective. A biotechnology industry competitive strategy couldinvolve a further relaxation of firm enforcement of patented discoveries that can beused by academic researchers. This industry strategy, if embraced, could help stymierenewed academic efforts to acquire their own preemptive patents. For example, theBiotechnology Industry Organization (BIO) could develop an industry-wide protocolthat expands the ability of academic researchers to use their patented discoveries inexperimental ways, yet still protect firm rights to prevent commercialization. Further-more, from a social responsibility perspective, the industry can also address the fin-ancial barriers encountered by academic researchers that precludes some patients(and research test subjects) from access to gene testing, and cancer patients, whobelieve they must patent genomic sequences and offer them to non-profit foundationsso as to remain financially accessible. The industry association, BIO, can develop afinancial ‘means-test’ approach that incorporates a ‘staggered’ fee-schedule for aca-demic researchers to charge their study subjects for gene testing, and further, estab-lish a philanthropic fund available to those individuals who may show exceptionalfinancial need to pay for these study-based, diagnostic gene tests.

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Thomas A. Hemphill is a visiting instructor in the Department of Strategic Management and Public Policy,School of Business and Public Management, The George Washington University, Washington, DC and candi-date at the School for the Ph.D. in Business Administration with a primary field in Strategic Management andPublic Policy and secondary field in Technology and Innovation Policy.

Documents

Preemptive patenting, human genomics, and the US biotechnology sector: balancing intellectual property rights with societal welfare