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THURSDAY, MAY 28, 1981

THE WALL STREET JOURNAL.

Published since 1889 by

DOW JONES & COMPANY, INC.

Long Life to Patents

The words "patent law" can hardly De said to possess a life-or-death ring. Not compared to words like penicillin or Salk vaccine. Yet the recent impact of the patent law on the drug industry could well be inhibiting those very kinds of discoveries.

Patents are a bribe: If you invest your time and money on risky endeavors, society will reward your success by granting you a temporary monopoly. U.S. patent laws confer a monopoly for 17 years during which the inventor can. presumably, earn a rate of return that makes the investment worthwhile. Society gets a reward too. of course; it gets an invention it might not otherwise have had.

This bribe is crucial to the drug industry. It's very costly, very time-consuming and very risky to develop a new drug. Currently, the process takes about 10 years, costs $70 million and has a failure rate of 90%. The promise of patent protection kept things humming until, in 1962, the thalidomide tragedy convinced everybody that new drugs needed more rigorous testing. This, in turn, meant more time elapsed before drugs could be brought to market.

Thus, the length of time between patenting a drug and getting FDA approval gradually ballooned from about one year, pre-1962, to over seven years now. In other words, drugs making their debut today have less than a 10 year monopoly life-not 17.

The telescoping of effective patent life has reduced rates of return to drug research and development. Industry studies show that over the past two decades, rates have been sliced in half. Since new products need anywhere from 12 to 19 years to generate R&D returns above 8%, the current life span of less than 10 years looks especially grim. After all, prudent financial management could earn a bigger bang-for-the-buck by buying government long bonds. As it is, drug compa

nies have been diversifying into businesses like cosmetics and salad dressings where returns are nearer to mar ket.

Falling rates of return have, quite naturally, translated into falling R&D. The ratio of R&D to sales has declined from 13 in 1962 to 8 in 1979. Moreover, this decline is mirrored in the decline in the number of new drugs: In 1960, the $3.5 billion drug industry brought forth 50 new drugs; in 1980, a $22 billion industry produced only 12 new medicines.

Other than the obvious implications of this drying-up of R&D, we might note one particular ill-effect-the impact of health care costs. Drugs are amazingly cost-effective. Consider two examples. Tagamet, an anti-ulcer drug, saves millions of dollars in surgical costs a year and the advent of a new class of heart drugs, calcium blockers, (due out any minute) might totally eliminate coronary bypass surgery.

There is a simple way to help restore R&D incentive to the drug industry: guarantee the full 17-year protection by starting the patent clock ticking after FDA approval, not before. Companies need an assured time horizon to make investment decisions and they should, in the present cost climate, be able to count on a full 17 years. Such a guarantee would reduce uncertainty over expected returns and cash flows, and, we hope, create the incentive to cure our hay fever.

Both the House and the Senate have bills to restore 17-year patent protection to the drug industry. We know that congressional action on patent law reform will not excite the network news into prime-time coverage. But that doesn't make it unimportant and there is every reason to believe, as even the sternest free market economists do, that society's return on this kind of bribe is well worth the payment.

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Cacing UH NESTaken pictuom

A tradition of disregarding patent infringement when it involves experimental use of an invention may be eroding for biologists

Some two dozen researchers at universities, companies, and government laboratories recently received letters from Johnson & Johnson warning them that the use in research of particular cells that produce monoclonal antibodies may infringe the company's patent rights. The letter raises the tricky question of the extent to which patent law can be used to restrict research uses of patented products and processes.

A similar issue was raised recently in a court decision concerning clinical testing of a patented drug. The U.S. Court of Appeals for the Federal Circuit, which now hears all patent appeals, ruled that Bolar Pharmaceutical, a generic drug manufacturer, broke the law by testing its version of a drug made by Roche Products before Roche's patent had expired. Some patent attorneys are concerned that. if the ruling is interpreted broadly, it could be used to restrict a variety of research activities.

Although Johnson & Johnson's warnings and the contest between Roche and Bolar are not directly related, they both address an area of patent law that is in a considerable state of flux. The statutes spell out in plain language how a patent grants a 17-year monopoly to an inventor, prohibiting others from making, using, or selling the invention. However, a tradition that began in the early 19th century has usually exempted experimental use of an invention from being construed as infringement. The issue at stake now is how to define when experimental use of patented technology becomes commercially threatening to an inventor and therefore no longer is entitled to that exemption. Some resolution of this ambiguity will be vital to the biotechnology industry, which is so heavily dependent on basic and nearbasic research activities.

The contest between Roche and Bolar has been closely watched in the pharmaceutical industry. Early in 1983 Bolar began an effort to get federal approval to market flurazepam hydrochloride, the active ingredient in Roche's highly successful sleeping pill, whose trademark is Dalmane. Although the safety of this drug already was established, the Food and Drug Administration requires a generic drug manufacturer to prove it can meet the same standards. However, if the generic manufacturer is forced to

wait until a drug's patent expires before such tests begin, the original manufacturer effectively gains a considerable extension on the patent's lifetime. (Legislation now being drafted by Representative Henry Waxman (D-Calif.) would resolve some of these problems (Science, 27 April, p. 369).]

Roche's patent for Dalmane expired on 17 January 1984, but Bolar began clinical trials long before that date. Roche brought a patent infringement suit against Bolar in July 1983. In October, the U.S. District Court in the Eastern District of New York ruled in Bolar's favor, but on 23 April 1984 that ruling was reversed on appeal. Bolar currently is planning to petition the Supreme Court to review the case, says attorney Robert Marrow, who represents the company.

The issue is how to define when experimental use is no longer entitled to an exemption from the patent laws.

"From the scientific point of view, the real threat [in the appeal court's decision] is it effectively prohibits any experiments with a patented product if it tends toward commercial development," Morrow says. "This is a farreaching opinion that [could] negate the experimental use exception, unless it's for pure amusement.

Morrow's interpretation is something of a worst-case reading of the opinion handed down by Judge Philip Nichols, Jr. But other attorneys are also speculating about how far his opinion goes in this direction. "The experimental use excep. tion is not gutted." says Jorge Goldstein, a patent attorney for a Washington, D.C., firm that represents a broad spectrum of corporate clients (but with no direct stake in the Roche-Bolar contest). "But for a company to argue that it's 'just doing research,' won't fly if it has a substantial commercial purpose."

The ruling may not be a serious inroad" on the experimental exception to patents, says James Weseman, a patent attorney with a San Francisco law firm with biotechnology company clients. But certain passages in Judge Nichols' opin

ion where he uses "expansive language to define experimental use" are worrying. Weseman says.

For example, Nichols wrote: "Bolar's intended use is solely for business reasons and not for amusement, to satisfy idle curiosity, or for strictly philosophical inquiry [and] is thus an infringement.... We cannot construe the experimental use rule so broadly as to allow a violation of the patent laws in the guise of scientific inquiry.' when that inquiry has definite, cognizable, and not insubstantial commercial purposes."

"The biotechnology industry is sensitive to anything that affects what they do best-research." Weseman continues. "If case law develops so that even in the earliest stages companies must avoid patent infringement, it will really restrict their abilities and stultify their research. There's plenty to worry about."

The recent actions by Johnson & Johnson could be another step toward restricting use of patents that is a cause for more worry. Johnson & Johnson patent attorney Geoffrey Dellenbaugh has been sending out letters to researchers warning against the use of particular monoclonal antibody-producing hybridomas, which the company has deposited with the American Type Culture Collection (ATCC) in the course of obtaining patents. "The fact that you have obtained samples of these hybridomas from the ATCC in no way grants you any right or license under our patents in the United States or other countries," one of the letters, sent to a researcher at the National Institutes of Health (NIH). says. "Your use of these hybridoma samples may constitute infringement of one or more of these patents, regardless of whether the thus-produced antibody is subsequently used or sold."

About two dozen researchers from universities, companies, and government research institutions including NIH are involved so far. The letters were sent out because of the concern that "people might use the cells in a way that infringes the patent and deprives us of sales of antibodies," explains Dellenbaugh. The cells can be obtained from ATCC at a nominal cost, whereas Johnson & Johnson's subsidiary, Ortho Diagnostics, is marketing the antibodies (for research and diagnostic purposes) to make a profit. The company quite naturally would

to protect its commercial interests develop a market for its patented oclonal antibodies. Researchers Id like to use those antibodies (some iem are to T cells, which are part of mmune system). And scientists with

the right know-how undoubtedly can
make the antibodies-from the compa-
ny's cell lines, obtained perfectly legally
from ATCC-more cheaply than they
can be bought.

"The reason we wrote those letters

was to inform people of the possible legal consequences. We intend, in appropriate circumstances, to protect our rights," Dellenbaugh says. The question, as with the Roche versus Bolar ruling, is "How far does that extend?" he adds. "If

DOD Springs Surprise on Secrecy Rules

Pentagon officials have moved to resolve a major issue in eir dispute with university scientists about government forts to control militarily sensitive research. The Departent of Defense (DOD) has decided to abandon its search r a formula to govern so-called gray areas of researchsearch which is not classified but is deemed militarily eful. Under the proposed policy, federally supported ndamental research would be treated on an either-or SIS as classified or unclassified.

The immediate reaction from academic observers is that : decision has the merit of creating a clearly defined licy. Whether the new policy will satisfactorily resolve : controversial issue of prepublication review of nonclased but sensitive research, however, is far from clear. e debate on scientific communication has caused divins among policy-makers at the Pentagon and there is ne skepticism about how fully the new policy has been cepted along the chain of command. A major issue is the rking definition of fundamental research under the new icy and, therefore, what research will be covered. Some servers suggest that under the proposed policy, the itagon would put more and more types of research into classified category.

For more than a year, DOD's effort to find forms of tection short of classification for gray-area research has n a major sticking point for Pentagon policy-makers and versity officials debating the tightening of controls on ntific communication (Science, 3 June 1983, p. 1021). ently there had been signs of a split in opinion within tagon ranks, with DOD under secretary for research engineering Richard D. De Lauer identified as quesing the creation of a new category of controls on arch (Science, 4 May, p. 471). But the decision caused onse among outsiders.

i testimony at a House hearing on 24 May, deputy etary for research and engineering Edith W. Martin that DOD officials had decided not to pursue the -area concept because the option had proved to be re complicated than it had seemed," and "the tradeunclear."

artin's comments at the hearing were the first public tion of the decision. In a brief summary of the new cy, which did not appear in her prepared testimony, described it as a "draft policy" that is still under ission in DOD and in other federal agencies. To a tion, however, she replied that she expected the y to be accepted in substantially its present form and >ply to fundamental research sponsored by all federal

cies

response to a question of when and why the decision made from Representative Doug Walgren (D-Penn.) chaired the hearing. Martin said that the possibility of

taking the "classification-nonclassification approach" had been considered from the beginning of DOD deliberations on the matter and, after discussions extending over more than a year, the conclusion evolved to adopt the classification alternative. This occurred 3 or 4 months ago, but was being enunciated publicly for the first time at the hearing.

The policy statement made available at the end of the hearing is as follows: It is the policy of this administration that the mechanism for control of fundamental research in science and engineering at universities and federal laboratories is classification. Each federal government agency is responsible for: a) determining whether classification is appropriate prior to the award of a research grant or contract and, if so, controlling the research results through standard classification procedures; b) periodically reviewing all research grants or contracts for potential classification. No restrictions may be placed upon the conduct or reporting of research that has not received national security classification.

The face-off between the universities and the Pentagon over gray area research dates from the publication in 1982 of the Corson report, a National Academy of Sciencessponsored study, "Scientific Communication and National Security," headed by Cornell University president emeritus Dale Corson. The study defined the research universities' concern about the problem. Corson appeared at the hearing and raised the issue of what he called "creeping grayness." noting that "There appears to be growing interest on the part of sponsoring agencies to extend the concept of grayness to ever more areas." But Corson and other university and industry witnesses by no means confined their criticism to the gray-area problem. By and large, they were most concerned with the application to research of legislation designed to control the export of militarily useful equipment and materials. In particular, they criticized the use of such legislation to restrict foreign nationals studying or working here.

Government witnesses were scheduled last at the hearings, but Martin did not deal directly with the criticisms by earlier witnesses. In effect, she trumped them with her announcement of the policy decision. There was no real exchange on the testimony since it came after a long session punctuated by intermissions for roli-call votes on the House floor and the Pentagon party had to depart for another engagement.

With details of the new policy unavailable, let alone information on interpretation and implementation, a waitand-see attitude seems to dominate in the universities. But a snap reaction among knowledgeable observers is that the effect of the decision may be to return the debate on grayarea research to where it was before the Corson report.

-JOHN WALSH

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